Understanding Property Contracts: Deed of Trust, Mortgage, & Promissory Note

When you start getting involved in buying and selling real estate notes, it can seem like there is a secret language, known only to buyers and lenders. “Mortgage” is simple enough, but once phrases like “deeds of trust” and “promissory note” start getting thrown around, the whole thing can start to seem like a confusing mess.

This is intensified when you realize that mortgage, deeds of trust, and promissory note all seem to mean the exact same thing. So why have three separate words in the first place?

These words are similar in meaning. But like with everything involved in note buying and selling, there is nuance here.

Keep reading and we’ll take you through the ins and outs of mortgages, deeds of trust, and promissory notes.

What Is a Deed of Trust?

A deed of trust, sometimes called a trust deed, is a document used in real estate transactions to secure a loan. Like a mortgage, it creates a lien on the property. But instead of involving just the borrower and the lender, a deed of trust brings in a third party: the trustee.

The trustee is usually an escrow company or title company, not a person. Their job is to hold the legal title to the property until the loan is repaid. If the borrower defaults, the trustee steps in to handle the foreclosure. This setup gives the lender more security without needing to go through the courts.

How does a deed of trust work?

A deed of trust works like this: the borrower takes out a loan, usually by signing one or more promissory notes, and gives the trustee the legal title to the property. The trustee holds that title in trust until the loan is paid off. Since the trustee is a neutral third party, they don’t represent either the borrower or the lender. They just carry out the terms of the trust.

If the borrower keeps up with payments, nothing changes. The trustee doesn’t get involved. But if there’s a default, the trustee has the power of sale and can start the foreclosure process. This means they can sell the property on behalf of the lender, also called the beneficiary, without going through court.

The deed of trust is usually recorded with the county recorder’s office in the county where the property is located. This way, it’s clear who holds the title and who has a lien on the property.

Type of foreclosure

The type of foreclosure tied to a deed of trust is different from what you get with a mortgage. In most cases, the foreclosure is nonjudicial. This means it happens outside the courtroom.

When the borrower defaults, the trustee starts the foreclosure process under what’s known as a power of sale clause. This process is governed by state law, but it’s usually quicker and less expensive than going to court.

This is one reason many states use deeds of trust instead of mortgages. The trustee’s sale lets the lender recover the loan faster if the borrower stops paying. 

Mortgages

Mortgages have become a bit of a blanket term for any home loan. After all, when you pay your bills, you say you’re paying your “mortgage,” not your “deed of trust,” even if you do, in fact, have one. But the two are not the same thing. Besides, whether you have a deed of trust or a mortgage makes a real difference when it comes to foreclosure, legal ownership, and the number of parties involved.

A mortgage involves two main parties: the lender and the borrower. The borrower issues a promissory note, along with the mortgage itself, as an agreement that pledges the property as collateral for the loan. In this setup, the borrower keeps the legal title to the real property, but the lender has a lien against it. In the event of default, the lender must foreclose through the courts. This process is known as judicial foreclosure. That means filing a lawsuit, waiting on a court schedule, and covering legal fees. It’s slower, more expensive, and gives the lender less direct control.

Should You Choose a Deed of Trust or Mortgage?

From the lender’s point of view, a mortgage offers less flexibility. That’s one reason many states use deeds of trust instead of mortgages, especially in financed real estate transactions.

A deed of trust, on the other hand, brings third party—the trustee—into the picture. The trustee takes full control only if the borrower defaults, and can foreclose on the property through what’s called a power of sale.

In this model, the deed transfers legal title (sometimes called legal title to the real property) to the trustee, while the borrower keeps full control of the property during the loan term. The trustee holds the property not for their own benefit, but on behalf of the beneficiary (the lender). Once the loan is paid in full, the trustee issues a grant deed returning title to the property to the borrower.

Because trust deeds transfer the legal title temporarily and allow a trustee to act without court involvement, they give the lender a crucial advantage over a mortgage in case of default. That’s why trust deeds are common in many states, especially where nonjudicial foreclosure is permitted by state law.

So, whether you have a deed of trust or a mortgage depends on where your property is located. Some states still mandate the use of mortgages, while others prefer trust deeds for their speed and efficiency. Both mortgages and deeds of trust are used for creating liens on real property, and both secure the loan through property as collateral. But the mechanics differ.

If you’re unsure which one applies to your situation, or need to understand how foreclosure might work, it’s best to consult with a real estate professional. 

What Is a Promissory Note?

Catch the root word there. It’s from the Latin promissorius, and it means “to promise.”

If you were asked to name the piece of paper you signed when you bought your home, you would probably be tempted to call it your “mortgage.” And while the phrase mortgage might be colloquially correct here, the technical term (and the one you want to be familiar with) is promissory note.

This is the document that contains the promise to repay the loan. It outlines the amount owed, the interest rate, the repayment terms, and the date the loan is due. The promissory note is used in conjunction with a deed of trust or mortgage, not instead of. It documents the debt, while the other documents secure that debt with the property.

A deed of trust involves three parties: the borrower, the lender, and a trustee. In that setup, legal title of the property is transferred to the trustee and held in trust until the loan is repaid. The trust is an agreement that allows a neutral third party to act if the borrower defaults, which is a transaction that some states use instead of a mortgage. But regardless of structure, the promissory note is central. It’s what binds the borrower to repayment.

This is also the document you issue if you seller finance a house, and it’s the one note buyers are interested in if you decide to sell. Trust deeds and mortgages may be recorded, may secure the deal, and may transfer title to the trustee or the lender. But it’s the promissory note that creates the obligation to pay.

Why the Trust Deed Matters to Both Borrower and Trustee

When you borrow to buy a home, you’re entering a legal structure that determines what happens if things go right, and what happens if they don’t. Whether you’re signing a mortgage or a deed of trust, you’re pledging the property as security for the loan.

In a deed of trust, that security rests with a neutral third party—the trustee—until the loan is repaid. From your side as the borrower, this may seem like a formality, but it’s not. If things go wrong, the trustee will initiate and complete the foreclosure and do so on behalf of the beneficiary. That difference affects the outcome of the foreclosure process. It also affects how long the process takes, and what options you may or may not have.

Many states use deeds of trust instead of mortgages because of that very reason. The system is built for speed. And while that might seem like a crucial advantage for lenders, it’s also a reason for you to stay alert. Once the trust is recorded, the rules are set. There’s no room for confusion about who holds what. The property is held in trust, and if you default, the process will move—fast.

So what should you do with all this?

Understand your agreement. Know whether you signed a mortgage or a deed of trust. If it’s the latter, know that your legal title sits with a third party, and that your lender doesn’t need a judge to reclaim it. If you’re unsure, check your closing documents. If you’re struggling, talk to your lender early. And if you’re at risk, consult with a real estate professional before the process starts—not after.

It’s your home. Know how it’s held.