Thursday, February 11, 2021 / by Randy Durham
A common question is "what is the difference between a title and a deed?" A title gives you legal ownership of the property. A deed is a legal document used to transfer the title to the new owner. The second thing the needs to be clarified is the difference between a mortgage and a deed of trust. They both do the same thing, but there are several differences in how the deed is transferred and what kind of foreclosure you will face if you can’t repay the loan.
Deed of Trust
This term applies to real estate loans that are secured by a deed of trust (mortgages and deeds of trust both have the same purpose, but have a few distinctions). A deed of trust is a legally binding document to secure a real estate transaction instead of a mortgage. Three parties are involved: the trustor (the borrower), the trustee (the party who holds the legal title), and the beneficiary (which is the lender). In exchange for a deed of trust, the borrower gives the lender a promissory note (which is a document that promises to pay the debt and is signed by a borrower.) If you took out student loans, you had to sign one of these before you paid for your classes. It works the same way. If you are the owner of a home and you have a deed of trust, you can face a nonjudicial foreclosure if you can’t repay the loan. This also means that you have a legal term called the right of redemption to repurchase your home after it’s been foreclosed. Tennessee and Georgia both use the non-judicial foreclosure process.
If you took out a mortgage, the most common deed used is called a warranty deed. What I am referring to specifically is a mortgage note, which is the same thing as the promissory note you sign if you buy a property with a deed of trust. A mortgage note means that once you sign your name, the lender of the money you borrowed can take back your home if you don’t make the payments you agreed to. A mortgage only involves two parties, instead of three like in the deed of trust. The two parties involved are the mortgagor (you) and the mortgagee (your lender). There are two types of warranty deeds: general and special. Both deeds offer different types of protection for you as if there is a defect on the title once it’s been transferred. A general warranty deed means that the property you own has no “defects” on the title that comes in the form of debts, liens, or any other claims against the property. A special warranty deed offers the same protections, but it doesn’t apply to the entire history usually bc the whole history isn’t known by the current owner. This deed basically just shows the property had no defects on the title at the time it was transferred.
This is a document signed by both a lender and a homeowner, which means that the lender can take out a lien against the property if the loan isn’t repaid. This also means that your lender can take your property as collateral for the loan. While your mortgage is still being paid, the legal title to the property is held by the lender.
Grant deeds basically transfer the interest in a property from the seller to the buyer in exchange for a negotiated price. The only thing a grant deed shows is that the seller owns the property. The grant deed does not offer any legal protection against any title defects like errors in public records, boundary disputes, or any liens against the house.
Bargain and Sale Deed
Another deed that’s similar to a grant deed and doesn’t ensure that the property is free from any defects. The only difference is that anybody taking ownership of the deed to that property is also going to take over any existing liens.
These deeds are really common if you are transferring the ownership of the property over to family members and are also common during a divorce. They are similar to grant deeds and bargain and sale deeds because they offer you very little protection, which means that as the new owner you aren’t protected against any liens or other issues that can come up.