Mortgages and Deeds of Trust in Acquisition Loan Transactions

Summary

This practice note explains the purpose and basic provisions of a mortgage and deed of trust. A mortgage or deed of trust grants an interest in real property as security for indebtedness of the grantor of the mortgage or deed of trust. Certain states follow the "lien theory" of mortgages, whereby the mortgage creates a lien on the subject real property and title (legal and equitable) remains with the property owner until the lien is foreclosed. Other states follow the "title theory," pursuant to which there is a conditional conveyance that transfers legal title to the subject real property as security for indebtedness, while the borrower retains equitable title to the property. A mortgage instrument will typically be used in those states following the lien theory, whereas a deed of trust instrument will typically be used in those states following the title theory.