Many borrowers are confused about the difference between a deed of trust and a mortgage. "Deed of trust" states do not require court procedures at the courthouse steps on the auction date.

Is your state a Deed of Trust state or do they have mortgages?

What is a Deed of Trust?

There exists three entities in a Deed of Trust. The Beneficiary which is the lender, the Trustor who is the borrower and the Trustee who holds "legal or bare" title. Mortgages do not contain a Deed of Trust. Therefore the foreclosure process works differently than in states where mortgages are common.

The Deed of Trust will generally include the loan amount, legal description of property, the parties, mortgage provisions, late fees, beginning of the loan and the maturity date, legal procedures, acceleration and alienation clauses. In addition it will also include riders if any exist such as prepayment penalties or ARM's (adjustable rate mortgages).

The Trustee is a third party and they issue the reconveyance deed once the deed is paid off. They also file Notice of Default in the event of non payment of the note. They have the power to sell the property. Oftentimes a Trustee is a title company. When it comes to filing the NOD (notice of default) they will usually do a substitution of trustee so another trustee carries out the foreclosure process. There is a 90 day period of public record of the notice of default having been filed. Often notices will be placed in a local paper as well as posted at the courthouse. After the 90 day period than the 21 day publication period begins where the Deed of Trust sale noticed is published in a local newspaper. Then the Trustee has the power to sell the property on the courthouse steps without the court being involved in the sale.

The Promissory Note is the evidence of the debt and is secured by the Deed of Trust. Usually the Promissory note is not recorded. It does contain the interest rate and terms of the loan as well as the parties of the loan. The borrower signs the note and the beneficiary retains it. After the note is paid off it is stamped as "paid in full" and returned to the borrower with the Reconveyance Deed. At this point there is no longer a Beneficiary or Trustee as the loan is paid in full and the borrower now has the reconveyance deed in hand.

Before signing your loan documents make sure you understand each page and all the parts of the pages. Make sure names and the property address are spelled correctly. Verify the interest rate, payment amound and loan amount are correct. This is your loan and it's what you owe so make sure everything is correct. Did you agree to a prepayment penalty with the lender when first signing up for the loan? Was it to be a fixed rate or adjustable rate mortgage? What was the interest rate supposed to be? Don't rely on others in the hurry of signing papers. Read the documents yourself and understand what you are signing. If the forms are confusing ask for more time to make sure you understand them. Actually, it's a good idea to ask for the forms you will be signing before you come in so you can read them in advance and get any questions settled.