Posted by derf4me - CA on 7/11/04 2:43am
Msg #4235

Rookie Question - DOT vs. Mortgage

Hello everyone. I have a rookie question.

Very often, I have seen the terms Deed of Trust and Mortgage used interchangably. Lately, though, I have seen them referred to as distinctive documents. What exactly is the difference? If they are different, I don't think I've ever seen a "mortgage"...just a DOT. Can anyone shed some light on my confused mind?

Thanks in advance.

Reply by PAW Notary Services on 7/11/04 7:28am
Msg #4236

The purpose of the two different security instruments is the same, that is, to allow the lender to have the rights to the property for the value owed in the note.

Simply put, the two differences are that a deed actually transfers ownership of the property, where a mortgage places a lien against the property, but title remains in the borrowers names. Since the deed is a deed of "trust", it means that the property is transfered to a trust, where the trustees are identified in the document. Then, if the loan defaults, the trustees can handle the disposition of the property. With a mortgage, the title of the property remains with the borrowers, so foreclosure action in the courts is necessary to settle the lien, where the lenders have first rights (on a 1st mortgage) or second rights (on a second mortgage) to the value of the balance of the loan, whether or not the property is sold or other financial arrangements are made.

I have been told that in DOT states, it is easier for the lenders to foreclose on the property because of the trustee relationship than it is in mortgage states, where things can take a long time on the docket before the case is even heard.

Reply by HisHughness on 7/11/04 11:38am
Msg #4242

Rookie questions are those such as, "Is it okay to breastfeed during a closing?," or, "Can I wear overalls to a closing?" Not, "What is the difference between a mortgage and a deed of trust?"

At common-law (in this country, the law as it existed in England before 1776), a mortgage was an actual conveyance of land to secure the payment of a debt or the performance of an obligation. Upon payment or performance, the mortgage was extinguished. However, in contemporary practice in many states, a mortgage conveys no estate in the land, but operates only as a lien, much like your automobile lien.

A Deed of Trust, on the other hand, vests the title in the lender (or, technically, a designated trustee). The borrower retains what is called an "equity interest." His interest is the difference between the amount owed and the value of the land. Owed = $100,000, Value = $150,000, Equity = $50,000. When the debt is fully paid, the Deed of Trust is cancelled and the legal ownership of the property reverts to the borrower, and the legal and equitable interest merge.

This is not something that a signing agent normally need worry about, unless practices in other states are vastly different from Texas. If it's in the packet, you get it signed, whether it's a mortgage, Deed of Trust, Deed To Secure Debt, or whatever. And you should not be explaining how they differe, I suspect, unless you are better informed than most signing agents I know.

Reply by derf4me on 7/12/04 1:45pm
Msg #4278

Thank you for the explanation. I was not planning on explaining something like that to a borrower. I just wanted to know for my own understanding because I originally thought they were synonymous. Now I understand. There will be one or the other in a transaction.

Thanks again to those who responded. :-)

Reply by Derrick/MT on 7/12/04 10:41am
Msg #4270

As a lender I like the Mortgage over the Deed of Trust because it allows us to collect on the deficent balance as compared to the DOT you get what you get out of the sale.

Reply by Stephanie/CA on 7/12/04 2:53pm
Msg #4279

Re: Rookie Question - DOT vs. Mortgage - Derrick

It is nice to know you're a lender; your responses to questions of this type hold alot of weight.

Thank you,
Stephanie

Reply by HisHughness on 7/12/04 3:20pm
Msg #4282

Re: Rookie Question - DOT vs. Mortgage - Derrick

Stephanie said:
"It is nice to know you're a lender; your responses to questions of this type hold alot of weight."

Hey! I'm not a lender, unless you count the edger that my brother-in-law glommed onto last week, and I carry even more weight than Derrick -- something my wife and doctor insist on pointing out frequently and (in my wife's case) with some gusto.

Reply by Sharon on 7/13/04 12:49am
Msg #4311

Re: Rookie Question - DOT vs. Mortgage - Derrick

Hmmmm.. if you read that statement.. it looks like stephanie was responding to DERRICK not hishughness!! hmmmmmmmm!

Reply by Stephanie/CA on 7/13/04 12:54pm
Msg #4329

Re: Rookie Question - DOT vs. Mortgage - Derrick

I was responding to a post by Derrick; that is why I added his name in the subject line; Hugh, I am aware that you are an attorney, and it's nice to know that as well.

Stephanie