Although a mortgage and a deed of trust are typically related documents and part of the same transaction, there are important differences between them that oftentimes only come to light when there is a dispute between the borrower and lender or trustee. A mortgage is a promise by the borrower (homeowner) to pay back money (usually money that was used to purchase the home) to the lender or mortgage company. A mortgage is typically a contract between just the borrower(s) and the lender or servicer.
A deed of trust, as distinguished from a mortgage, is the actual instrument which provides a security interest in the property (similar to a UCC-1 in California), to the lender but also adds the trustee to the arrangement and vests the trustee with the power to sell the property (for the benefit of the lender) in case the borrower defaults on payments. In a non-judicial state like California, this happens automatically through contract, rather than through the Courts as in many other states.
Mortgage Disputes and Litigation
Disputes can arise between borrowers and lenders regarding the terms of a mortgage. Since a home mortgage is such a long and detailed contract between the parties, it is common for there to be certain terms and provisions that are misinterpreted and/or misunderstood. It is also common, unfortunately, for the person originating the loan to simply not understand or negligently misrepresent the terms of the mortgage contract to the borrower. This can cause many issues down the road. The subject matter of most mortgage disputes include:
- Interest rate
- Repayment terms
- Interest rate adjustments
- Escrow accounts and balances
- Accounting for payments
- Adjustment in payment amount
- Balloon payments
Any of these, and many other, mortgage contract and mortgage origination issues can lead to disputes between borrower and lender, and ultimately, litigation. Oftentimes issues arise when a loan is sold or transferred to another servicer or investor. The new servicer does not understand the terms of the loan, or simply tries to make extra money by raising payments or unilaterally changing the arrangement to the borrower’s detriment.
Deed of Trust Litigation
Another type of common real estate litigation relates to deeds of trust. As described above, a deed of trust is distinct from a mortgage contract, but the two often work together. A deed of trust incorporates a third party to the transaction or relationship, the trustee. Under the deed of trust, the trustee is given limited powers to act when certain circumstances arise. The most common situation where the trustee becomes involved or acts on behalf of the lender (or beneficiary) is when the borrower has missed a number of payments. In this instance, the trustee has the authority to foreclose on the property through a non-judicial process (in California).
Obviously the relationship between the lender (beneficiary), borrower (homeowner) and foreclosure trustee can be complex and give rise to a number of potential important disputes. These disputes can easily turn into real estate litigation because of the critical issues at hand.
Mortgage and Deed of Trust Litigation Attorneys
With something as important and potentially significant as a deed of trust or mortgage dispute, it is essential to have only the best real estate attorneys representing you. McFarlin LLP attorneys have handled hundreds of real estate litigation matters relating to mortgages, deeds of trust and many other controversies. We provide cost-effective and affordable solutions for real estate problems. Oftentimes we are brought in to recover title after a wrongful foreclosure sale, or sue for damages. Call us today for a free case evaluation and analysis at (888) 728-0044.