What’s the Difference Between a Mortgage and a Deed of Trust?

When it comes to debt, real estate is one of the best ways to provide security for lenders. That's done almost exclusively with either a mortgage or deed of trust. They both serve the same fundamental purpose but function differently when it comes to chasing down a default.

Short Version: Conversationally, most people can use the terms interchangeably without offending anyone or causing harm. They're the legal documents that allow lenders to foreclose if a borrower defaults.

What They Do - Security Instruments

Both a mortgage and a deed of trust are "security instruments." Their primary function is to provide lenders with a legal claim to the property if the borrower defaults on their loan obligations. This means that while the borrower maintains possession and use of the property, the lender has a secured interest in it until the loan is repaid in full.

The difference comes in when it's time to foreclose.

Key Differences Between a Mortgage and a Deed of Trust

The Foreclosure Process

One of the biggest differences between a mortgage and a deed of trust is how the lender can recover their investment if the borrower defaults.

Judicial Foreclosure (Mortgage States)

• In states that use mortgages, foreclosure must go through court proceedings before the lender can repossess the property.

• The lender must file a lawsuit, provide evidence of default, and get a judge’s approval before proceeding with a foreclosure sale.

• This judicial process often takes months or even years, depending on the state and the borrower's ability to contest the case.

Non-Judicial Foreclosure (Deed of Trust States)

• In states using deeds of trust, foreclosure is typically handled outside of the court system by the trustee.

• If the borrower defaults, the lender notifies the trustee, who follows a pre-established foreclosure procedure (set by state law).

• The trustee can sell the property at auction much faster than in a judicial foreclosure, often within a few months.

For lenders, this makes deeds of trust the preferred option in states where non-judicial foreclosure is permitted because it reduces time, legal costs, and the risk of borrower litigation.

Number of Parties Involved

• Mortgage: A mortgage involves two parties—the borrower (mortgagor) and the lender (mortgagee). The borrower retains full title to the property while granting the lender a lien against it.

• Deed of Trust: A deed of trust introduces a third party—the trustee—who holds the property’s legal title in trust for the lender until the loan is fully repaid.

The trustee plays a critical role in foreclosure (discussed below), making the deed of trust a fundamentally different instrument from a mortgage.

Time & Cost of Foreclosure

Because judicial foreclosures (mortgages) must go through the courts, they are:
✔️ Slower (can take 6–24 months or more)
✔️ More expensive (legal fees, court costs, potential borrower appeals)
✔️ More borrower-friendly (more time to contest and delay foreclosure)

Non-judicial foreclosures (deeds of trust) are:
✔️ Faster (often 60–90 days in some states)
✔️ Lower cost (avoids court fees and lengthy litigation)
✔️ More lender-friendly (less opportunity for borrower delays)

Where Are Mortgages vs. Deeds of Trust Used?

Each U.S. state follows either a lien theory (favoring mortgages) or a title theory (favoring deeds of trust).

• Mortgage States (Lien Theory): The borrower retains full legal title, and the lender has only a lien on the property. Judicial foreclosure is required.

• Deed of Trust States (Title Theory): The trustee holds legal title, and foreclosure can proceed without court involvement.

Some states allow either a mortgage or a deed of trust, depending on the lender’s preference.

Many lenders prefer states like TX and AZ which use deeds of trust because they allow for faster foreclosure and reduce overall lender risk.

Which Is Better for Investors & Lenders?

✔️ For Lenders: Deeds of Trust are generally preferable because they provide a faster, more cost-effective foreclosure process in case of default.

✔️ For Borrowers: Mortgages can provide more protection against foreclosure, as they require court involvement and often take longer to process.

✔️ For Investors Buying Subject To the Existing Loan: Knowing that a mortgage takes longer to foreclose can be comforting for buyers who are concerned about facing the due-on-sale clause. But that's a double-edged sword in case the investor wants to sell with wraparound financing.

Closing Thought

For investors and lenders considering deals, be sure to understand which instrument applies in your state and how it impacts foreclosure risk, deal structure, timelines, and expenses to enforce.