Question

Alec and Jose both have promissory notes secured by real estate. Alec is the holder of a mortgage deed where Jose holds a Deed of Trust. Due to the COVID economic aftermath, both loans defaulted. Explain the process of default in detail for these two unfortunate souls including all the players involved.

Answer 1

Answer :

Mortgage :

Meaning

Often, people refer to a home loan as a “mortgage,” but a mortgage is not actually a loan. The mortgage is a contract between you and the lender that creates a lien on the property. Certain states use mortgages, while others use deeds of trust.

Mortgage Terminology

There are two parties to a mortgage:

• the mortgagor (the borrower) and
• the mortgagee (the lender).

Mortgage Transfers

Mortgage transfers between banks are common. When a mortgage is transferred from one party to another, it should be documented and typically is recorded in the county records. The document used to transfer a mortgage from one mortgagee to another is called an assignment of mortgage.

Mortgage Foreclosures

The mortgage gives the mortgagee the right to sell the secured property through the foreclosure process if the mortgagor doesn't make the payments or breaches the mortgage in another way. Judicial foreclosures, which must go through the state court system, are typical in states that have mortgages as the security instrument.

Deed of Trust :

Meaning

A deed of trust, like a mortgage, pledges real property to secure a loan. It is used instead of a mortgage in certain states.

Deed of Trust Terminology

A deed of trust involves three parties:

• the trustor (the borrower)
• the lender (sometimes called a "beneficiary"), and
• the trustee. (The trustee is an independent third party that holds “bare” or “legal” title to the property. The main function of a trustee is to sell the property at public auction if the trustor defaults on payments. Learn more about the duties of a foreclosure trustee.)

Deed of Trust Transfers

Like mortgages, when a deed of trust is transferred from one party to another, an assignment is typically is recorded in the county records. (Transfers of mortgages and deeds of trust are both commonly referred to simply as “assignments.”)

Deed of Trust Foreclosures

Nonjudicial foreclosures are common in states that use deeds of trust. In a nonjudicial foreclosure, the lender can foreclose without going to court so long as the deed of trust contains a power of sale clause. State law lays out the procedural requirements for nonjudicial foreclosures.

Nonjudicial foreclosures tend to be much quicker than judicial foreclosures. (To learn more, see our articles Timeline for a Nonjudicial Foreclosure and Timeline for a Judicial Foreclosure.)