The mortgage system followed in United States is a bit different from other countries. There are two types of mortgage instruments used in United States. Those are Mortgage deed and Deed of trust.
Mortgage Deed
In this type of instrument, a legal claim for a mortgage specifically titled to the mortgaged property is generated. A judicial process is required for the foreclosure of that claim. It also allows property sale in order to pay the debt.
Deed of Trust
Here, the borrower pays a deed to the trustee in order to secure a debt. In most states, it creates a claim on the property. This is quite different from a typical mortgage. This mortgage is foreclosed by a non judicial sale owned by the trustee. A judicial proceeding can also be use to foreclose the deed of trust.
Most of the mortgage policies in some states are deed of trust. The major difference is that a deed of trust is processed much faster than a mortgage. It is on the order of 3 months against that of one year in case of mortgage. And the foreclosure does not require any action from the court. That is why, the transaction costs are bit less.
The deed of trust is used to secure the repayment of debts. However, it should not be confused with the other trust instruments, which are also known as deed of trust. Such type of trusts claims used to create trusts for other purpose like estate planning etc. Although there are similarities in both the forms, but many states define deed of trust secured repayment of debt.
Mortgage claim Property
In very few states, the deed of trust form is used to create a mortgage claim for a property that is being mortgaged. When the mortgage is signed by the mortgagor, the claim is attached to the title. It is then delivered to the mortgagee. The mortgagor receives the funds, which is the repayment on the secured mortgage. This attachment is subjected to the requirements of the recording laws.
The priority of the mortgage claim is established with respect to the other claims on the title property by this attachment. The claims that are attaches afterwards are known as subordinate or junior claims. This priority establishes the order of foreclosure. The claim holders have to follow this order to foreclose their claim in an attempt of recovering the debts.
When the loan, secured by the first claim is paid off then the second mortgage claim moves up in order and becomes the first mortgage claim on the title. This new priority can be only mortgaged when the mortgage, that secures the paid off loan, is released.
