Understanding Warranty Deeds, Mortgages, Contracts, and Trust Deeds – Part 1

I'll start by telling you that there is a difference between financing tools and ownership tools.  And, because there is so much to understanding regarding everything associated with buying a new home, I will break this up into two blogs.  This blog I will start with financing tools and the next I will go over ownership tools. 

Most new homebuyers have many questions about warranty deeds, mortgages, contracts and trust deeds.  Some know these common terms when buying a home but really don't understand what they mean or how they work.

Financing tools include mortgages and trust deeds. 

A mortgage is a legal document where one person or party promises to pay the lender for the total amount of the home plus financing fees. 

A trust deed is unlike many other deeds.  This deed transfers the land tile to a title company or a trustee.  After the loan has been paid by the borrower, the title is then transferred to the borrowing party.  Keep in mind, the trustee has no power over the property unless the borrowing party defaults on said loan.

The difference between a trust deed and a mortgage is that there are only two parties involved in a mortgage; borrower and lender.  And, there are three involved in a trust deed; borrower, lender and trustee.  Another difference between the two is the way the foreclosure process is handled  if the borrowing party defaults on said loan.  A deed of trust allows the foreclosure process to go faster.

Seller financing sometimes comes into place when a seller owns the property and is willing to be the lender.  The seller is completely free of any debt, and is willing to let the buyer pay him/her a monthly payment.  The seller basically becomes the mortgage company.  After the full selling price has been paid, the seller will then turn over the legal title of the property to the buyer.  These types of seller financing contracts vary from seller to seller.

Check back next week for Understanding Warranty Deeds, Mortgages, Contracts, and Trust Deeds - Part 2.