The Differences Between Mortgages & Deeds of Trust

Commercial real estate is an expensive endeavor. It typically is more expensive than residential property and is mostly bought by corporations. Just like residential property transactions, commercial property is bought with financing options. It is impossible for most businesses to buy a property in cash for cashflow and reserve funding reasons. That is why they utilize loans like most homeowners do. When you finance the purchase of commercial property, there are two common ways that lenders protect their financial investment. These two ways are with mortgages and deeds of trust. We will explore the differences between the two options below.

Mortgages

Mortgages for commercial property are the same as residential property. A lender agrees to pay for the purchase of a property while you pay a small down payment and interest towards the funds that are financed. The lender then places a mortgage lien on the property. This lien becomes fully payable upon the sale or transfer of the property. The lender also holds the title of the property until the mortgage is paid off. Upon repayment, the title is released to the owner and the lien is removed from the property.

Deeds of Trust

A deed of trust is a legal instrument that is used to create a security interest in a property. It essentially functions as a way for the lender to hold the property under their control until the loan is repaid. The trustee, who is the lender, is given control of the property under a deed of trust. Upon repayment of the loan, the trustee relinquishes control of the property to the owner of the property.

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