National Real Estate Practice Exam

The distinction between a mortgage and a deed of trust primarily involves the parties involved and the structure of the agreement. In a mortgage, there are typically only two parties—the borrower and the lender. The borrower gives the lender a security interest in the property; however, the lender has to go through the court system to foreclose on the property in case of default.

In contrast, a deed of trust involves three parties: the borrower (trustor), the lender (beneficiary), and a third party known as the trustee. The trustee holds the legal title to the property on behalf of the lender until the borrower repays the loan in full. This arrangement allows the lender to bypass the court system and enact a non-judicial foreclosure process if the borrower defaults on the loan, which can often be quicker and less expensive.

This structural difference is significant because it influences how foreclosures are handled and what rights each party has. Therefore, understanding this relationship is crucial for anyone studying real estate financing.