What is the Difference Between a Mortgage and a Deed of Trust?

We hear the term “mortgage” used all time, and most of the time people use it incorrectly. Most people are talking about their home loan when they say “Mortgage.” A Mortgage is actually not a loan at all. It is actually a promissory note.

What is a Promissory Note?

A Promissory Note is an agreement you make (in this case with a bank) to secure the loan they are giving you. A home loan is a lot of money, and the bank wants security and collateral in case you cannot pay the money back. This is why they have you sign a Promissory Note that puts the house up as security for the loan they gave you to buy the house.

What is a Mortgage?

A Mortgage is a Promissory Note that you give a bank. It gives the bank the right to foreclose on your house if you cannot pay off the loan they gave you. In a Mortgage, there are two parties. You are called the Mortgagor because you are giving the Mortgage to the bank. The bank is called the Mortgagee. If you cannot pay the loan the bank will foreclose on the Mortgage. This means that the bank will have to file a foreclosure lawsuit and go through the court system to enforce the Mortgage.

What is a Deed of Trust?

There are two main differences between a Deed of Trust and a Mortgage. They are both used for the same purpose. However, in a Deed of Trust, there are three parties. You are the Trustor because you are putting the deed to your house into a trust. The Bank is the Beneficiary because they will receive the deed out of the trust if you fail to pay off the loan. And the third party is the Trustee, and they hold the deed until either you pay off the loan (then the deed goes to you) or you fail to pay the loan (then the deed goes to the bank). What this really means is that the bank does not have to file a lawsuit or go through the legal system. The bank can initiate a non-judicial foreclosure. If you want to challenge the bank, you will have to file a lawsuit. To read more about what happens after foreclosure see our previous blog.

Virginia is a Deed of Trust state, so if you bought a home in Virginia it is almost certain that you have a Deed of Trust as opposed to a Mortgage. The good news is that the distinction does not matter unless you are facing foreclosure. If you are facing foreclosure in Virginia it is critical that you seek legal advice because your legal rights are your responsibility. To read more on lenders and foreclosure see our previous blog.

If you need legal advice, Contact Keithley Law, PLLC, PLLC today by calling (703) 454-5147 and schedule an initial consultation in our Fairfax law office with one of our Virginia attorneys. We can walk you through the steps of your foreclosure.