How do mortgage and deed of trust differ as security instruments?

• A. A mortgage creates a lien on the property; a deed of trust uses a trustee and a power of sale mechanism.
• B. A mortgage uses a trustee and a power of sale.
• C. A deed of trust creates a lien on the property.
• D. There is no difference between them.

Answer: (A)

In mortgage lending, the security instrument used to pledge the property to the lender creates a lien on the property, giving the lender a legal claim if the borrower defaults. The big difference lies in how foreclosure is carried out. A mortgage is a two-party arrangement (borrower and lender) and foreclosures are typically handled through the court system (judicial foreclosure) in many jurisdictions, which can take longer.

A deed of trust, on the other hand, involves three parties—the borrower (trustor), the lender (beneficiary), and a trustee. The trustee holds title in trust and, if the borrower defaults, the beneficiary can exercise the power of sale through the trustee without going through the court in many states (non-judicial foreclosure), allowing a faster process.

So, the correct description highlights that a mortgage creates a lien, while a deed of trust uses a trustee and a power of sale mechanism. The statement that there’s no difference ignores these distinct foreclosure procedures, and the idea that a mortgage uses a trustee and power of sale mixes up the roles.