Within the cash flow industry, terms such as mortgage, trust deed, and deed of trust are used frequently and often interchangeably. Here, at First Class Cash Flow Handlers, we purchase both mortgages and trust deeds which are privately held and we often use these terms interchangeably, as well. However, the truth is that there is a difference between a mortgage and a trust deed.

Both mortgages and trust deeds are documents which are used to secure payment of a real estate loan. The mortgage or trust deed is "attached" to the property itself and, in the event that the borrower does not make the payments specified in the promissory note, the mortgage or trust deed can be used by the lender to foreclose on the property.

The difference between a mortgage and trust deed lies in the the way the foreclosure proceedings are carried out. To enforce a mortgage, the lender has to go to court. To enforce a deed of trust, the lender merely has to notify the trustee that the borrower has defaulted. As a result, a lender can foreclose a deed of trust much faster than a mortgage, often within a period of months.

In a mortgage, the lender is known as the mortgagee and the borrower is known as the mortgagor. These are the only two parties involved in a mortgage.

In a trust deed, there are three parties involved -- the trustor, the trustee, and the beneficiary. The lender is known as the beneficiary, the borrower as the trustor, and there is usually a neutral third party, known as the trustee, who is responsible for holding the legal title to the property until the loan is satisfied (paid off).

Though most lenders would probably prefer to use a deed of trust, many states do not allow deeds of trust because of the possibility that an unscrupulous lender can easily use the speedier process to take advantage of the borrower.

A deed of trust and a trust deed are simply different names for the same document.

While most mortgages or trust deeds involve loans made by commercial lending institutions, such as a bank, there are a significant number of owner-financed mortgages and trust deeds as well. Owner financed mortgages and trust deeds are just as described above, except that the lender is a property or business owner who has sold his/her property or business and financed the sale personally. In this case, the property owner (or business owner) takes the place of the bank or lending institution and the buyer pays the property owner directly, instead of making the payments to a bank or lending institution.

Owner-financed mortgages and trust deeds are also sometimes referred to as seller-financed, or privately-held, mortgages or trust deeds. These mortgages and trust deeds are a valuable asset which can be sold for cash should the holder of the mortgage or trust have a need for cash.