In a mortgage, there are two parties involved: the borrower (or the mortgagor), and the lender (or the mortgagee). The difference between a mortgage and a trust deed has to do with foreclosure.

If you don't make payments on a mortgage, the lender can only foreclose, or take ownership of the property, by going to court. This court action takes a long time, usually 6 months or more. If the lender takes back the property, the borrower (previous owner) can redeem the property at a later time by paying back the mortgage and the lender's cost. Mortgages are generally not favored by lenders, despite the popularity of the term.

In a trust deed, however, there are three parties involved: the borrower (or trustor), an independent third party called the trustee, (usually a title insurance company to whom the deed of the property is signed over; in case of foreclosure this party can give the deed of ownership to the lender), and the lender (called the beneficiary). The advantage of the trust deed over a mortgage is that foreclosure can be accomplished without court action. The beneficiary (lender) simply informs the trustee that the payments have not been made, and the trustee issues the lender the deed to the property. Of course, there are strict procedures that need to be followed. In California, for example, the lender must allow the borrower 90 days to make the loan current. Then the lender must advertise the property for 21 days, during which time the borrower can redeem the loan by paying it back. Finally, the lender can sell the property to the highest bidder on the courthouse steps.

But it is now common practice to use the terms mortgages and trust deeds synonymously.

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