List of Deed of Trust States
When taking out a mortgage against a property, the lender will require the borrower to sign either a mortgage document or a deed of trust. These documents protect the lender in the case of default. There is a subtle difference between a mortgage and a deed of trust. Each state determines which document will be used. As of the writing of this article, 20 states and the District of Columbia use a deed of trust to secure a mortgage.
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List of States
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The 20 states that are considered deed of trust states are: Alaska, Arizona, California, Colorado, Idaho, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Carolina, Oregon, Tennessee, Texas, Utah, Virginia, Washington and West Virginia along with the the District of Columbia. All other states use mortgages to secure debts except Georgia, which uses a security deed and Connecticut which uses a mortgage deed.
Parties in a Deed of Trust
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In mortgage states, the mortgage itself has only two parties, the borrower and the lender. In deed of trust states there are three parties involved in the transaction. The borrower, lender and a trustee who holds the title for the lender until the loan has been paid off. At the time of payoff, a release or a reconveyance deed is completed, removing the lien from the title of the home.
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Foreclosure
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Many states choose to be deed of trust states because the foreclosure process is much faster in these states. Mortgage states must go through a judiciary process to foreclose on a home which is time consuming and very costly. Deed of transfer states do not have to go through a judiciary process. When the borrower defaults, the lender provides the deed of trust to the trustee assigned, typically a title company, escrow company or bank which is then instructed to sell the home.
Remaining Balances After Foreclosure
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The deed of trust may allow for faster foreclosure proceedings. However, one major drawback to lenders in deed of trust states is that if the home sells for considerably less than the amount of the loan, the difference is not the responsibility of the borrower. In mortgage states, the lender sues the borrower for the entire amount owed on the property. This means that even after the home is sold, the borrower could still owe the lender thousands of dollars.
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