With every real estate transaction comes a mountain of paperwork and confusion as to what each document stands for. However, three of the most important legal documents, and most often confused, are the deed of trust, mortgage, and warranty deed. Depending on the type of real estate transaction and where you live, you may encounter one of these documents in the home buying and selling process. So, when it comes to these documents, what is the difference anyway? Let’s discuss.
What is a Warranty Deed?
When a property is sold, a warranty deed is a legal document that is used to transfer ownership of the property from the seller to the buyer. A warranty deed, provided by the seller, guarantees to the buyer that the property is owned by the seller, free and clear of any title defects, and does not have any outstanding debts, including mortgages. This document is issued as part of the title search and includes details such as the address, description of the property, information about the parties involved, and the date of the transaction.
Understanding Deeds of Trust and Mortgages
A Mortgage is an instrument pledging real property for a loan. This is a two-party instrument: The mortgagor (debtor) grants the mortgage to the mortgagee (lender). A mortgage explains the details of the loan including the principal balance, maturity date, and interest rate information. Mortgages can be foreclosed judicially or nonjudicially, though they are usually foreclosed judicially.
Deed of Trust is a three-party instrument: The grantor (debtor, mortgagor) gives Deed of Trust to a trustee as security for a debt owed to the beneficiary (a.k.a lender, mortgagee). Like a mortgage loan agreement, the deed of trust explains the details of the loan including the principal balance, maturity date, and interest rate information. The trustee is given the power of sale allowing the trustee to foreclose nonjudicially.
With a deed of trust or a mortgage, they can only be released after satisfaction by the beneficiary or mortgagee. However, a few states have granted the power to release to the trustee.
This map shows where a deed of trust, mortgage loan, or both are accepted.
Deed of Trust, Mortgage, and Warranty Deed: Key Difference
Depending on where you are purchasing a home, you may encounter one or all these documents, however, each of them plays an integral role in the home buying process with vastly different purposes.
A deed of trust or mortgage only secures that Promissory Note of the lender against the property. A warranty deed conveys the legal title to the buyer and warrants that a property is owned and able to be sold without any encumbrances and liens. A warranty deed is only used in a purchase transaction whereas a deed of trust and mortgage can be used in a purchase or refinance.
If you have additional questions regarding warranty deeds, deeds of trust, mortgages, or any other paperwork associated with the home buying and selling process, contact the team at Millennial Title today. With 22 direct state licenses and partnerships throughout the country, Millennial Title is here for you, wherever you are.