Mortgages and deeds of trust differ in several respects:

. Parties
. Reinstatement
. Title
. Redemption
. Statute of Limitations
. Deficiency Judgment
. Remedy
. Satisfaction

As to the parties. In a mortgage there are typically two parties: a mortgagor and a mortgagee. The mortgagor (borrower) gives the mortgagee (lender) a lien upon the mortgagor’s property as security for the loan advanced by the mortgagee.

In a deed of trust there are three parties: the trustor (borrower), the trustee (third party), and the beneficiary (lender). The trustor conveys title to the trustee to hold until the trustor performs or defaults under the terms of the note. The trustee’s function is to reconvey the property to the trustor when the loan is paid in full or, upon default by the trustor, to foreclose upon the property at the request of the beneficiary.

As to title. A mortgage does not convey title; it creates a lien. In a deed of trust, technical legal title for a limited purpose is conveyed to a trustee. In both cases, possession and equitable title remain with the borrower.

As to the statute of limitations. In the case of a mortgage, an action to foreclose is barred when the statute of limitations of four years has run on the note.

In a deed of trust, the rights of the creditor against the property are not ended when the statute has run on the note, for the trustee has title and can still sell to pay off the debt.

As to remedy. In a mortgage, the only remedy of the mortgagee is foreclosure, unless the mortgage contains a power of sale, in which event such power may be exercised. In a deed of trust, alternative remedies of trustee’s sale or judicial foreclosure are permitted.

As to reinstatement. Under a mortgage, the mortgagor and certain other persons listed in Civil Code Section 2924c may reinstate the loan by curing the default at any time before the judicial decree of foreclosure by paying all delinquencies, including advances made by the mortgagee to a senior lienor (lenders), plus all costs and fees incurred because of the foreclosure action. Persons permitted by statute to cure a default are the mortgagor or his successor in interest, any mortgagee or beneficiary under a junior mortgage or trust deed, or any other person having a subordinate lien or encumbrance of record.

Reinstatement under a trust deed (or mortgage under a power of sale) is the same, except reinstatement must be made prior to five business days preceding the date of the trustee’s sale or the date of any postponed sale if the power of sale is exercised.

Under either security instrument, the lender’s right to accelerate payment of the debt on default is limited by the statutory right of reinstatement.

As to redemption. Code of Civil Procedure Section 729.020 provides that property sold subject to the right of redemption may be redeemed only by the judgment debtor or his successor in interest. Junior lienors are no longer entitled to redeem and have their liens reattach, but must sue as an unsecured creditor.

The redemption period is three months after the sale date if the sale proceeds are sufficient to pay the secured indebtedness plus interest and costs of foreclosure.

The redemption period is one year after the sale date if the sale proceeds do not satisfy the amount of the debt plus interest and costs. However, if the mortgagee waives or is prohibited from obtaining a deficiency judgment, there is no longer any right of redemption according to Code of Civil Procedure Section 726 (the one action rule).

Under a trust deed or a mortgage with power of sale, the debtor in most cases has a statutory right of reinstatement after default up to five business days prior to the date of the trustee’s sale or the date of any postponed sale and the right of redemption thereafter to the conclusion of the trustee’s sale. No right of redemption applies following the trustee’s sale. The sale is absolute.

As to deficiency judgment. A deficiency judgment is a personal judgment against a debtor for the difference between the unpaid balance of the secured debt (plus interest and costs and fees of sale) and the amount of the actual proceeds of the sale. California law places restrictions on deficiency judgments.

Where a mortgagee or beneficiary elects to foreclose the security by power of sale rather than by judicial foreclosure, a deficiency judgment is automatically barred under Code of Civil Procedure Section 580d. Section 726 of the same code sets certain limits for a deficiency judgment; and Section 580b of that code prohibits deficiency judgments when specified purchase money secured loans are involved.

A purchase money obligation may arise by:

• a seller extending credit to a purchaser and taking back from the purchaser a note secured by a trust deed on the property regardless of the nature of the security property; or

• a third party lender advancing cash to the purchaser to pay all or part of the purchase price of the security property which is the intended residence of the borrower and which consists of 1 to 4 residential units.

Usually, a seller extending purchase money credit cannot obtain a deficiency judgment if the buyer defaults and a foreclosure sale fails to bring sufficient proceeds to pay off the seller’s note. An exception to this rule exists in the sale of a property to a developer for commercial development and the seller subordinates his purchase money lien to the lien of the purchaser/developer’s construction loan. Thereafter, upon default of the purchaser/developer, the vendor loses his security interest after sale or foreclosure under the senior lien. Code of Civil Procedure Section 580b will not be applied to bar recovery by the junior vendor/lienor of the unpaid balance of the purchase price of the property.

A person lending cash may obtain a deficiency judgment unless the loan was to pay all or part of the purchase price of a residential dwelling consisting of 1 to 4 units to be occupied entirely or in part by the purchaser.

Where a deficiency judgment is permitted, the beneficiary must first look to the security to satisfy the debt through a judicial foreclosure before seeking a deficiency judgment, except a “sold-out junior” (lien holder) may sue directly on the note.

It should be noted that a purchase money mortgage or trust deed given for all or part of the purchase price of real property at the time of its conveyance has priority over all other private liens created by or against the purchaser’s security, subject to the operation of the recording laws. This rule protects even third persons who furnished money, but only when it is loaned for the express purpose of paying for the property. (Civil Code Section 2898)

As to satisfaction. When any mortgage has been satisfied, the mortgagee or the assignee of the mortgagee must initiate the discharge procedure and shall execute a certificate of the discharge thereof, as provided in Civil Code Section 2939 and shall, within 30 days of satisfaction, record or cause to be recorded, except as explained below, such certificate in the office of the county recorder in which the mortgage is recorded. The mortgagee shall then deliver, upon written request of the mortgagor, the original note and mortgage to the person making such request. (Civil Code Section 2941)

When the obligation secured by any deed of trust has been satisfied, the beneficiary or the assignee of the beneficiary shall execute and deliver to the trustee the original note and deed of trust, a request for a full reconveyance and such other documents as may be necessary to reconvey the deed of trust. The trustee shall, within 21 calendar days after receipt of all necessary documents, instructions and fees, execute and record or cause to be recorded, except as provided below, a full reconveyance in the office of the county recorder in which the deed of trust is recorded. The trustee shall then deliver, upon the written request of the trustor, the original note and deed of trust to the person making such request and a copy of the reconveyance shall be delivered to the beneficiary, its successor in interest, or its servicing agent if known. (Civil Code Section 2941)

Limitation to Recording of Reconveyance

Pursuant to Civil Code Section 2941, the mortgagee or trustee shall not record or cause the certificate of discharge or the deed of full reconveyance to be recorded when any of the following circumstances exist:

1. The mortgagee or trustee has received written instructions to the contrary from the mortgagor or trustor, or the owner of the land (as the case may be), or from the owner of the obligation or debt secured by the deed of trust or his or her agent, or escrow holder.

2. The certificate of discharge or deed of full reconveyance is to be delivered to the mortgagor or trustor, or the owner of the land (as the case may be), through an escrow to which the mortgagor, trustor, or owner is a party.

3. Personal delivery is not for the purpose of causing recordation and the certificate of discharge or deed of full reconveyance is to be personally delivered with receipt acknowledged by the mortgagor or trustor or owner of the land, as the case may be, or their agent if authorized by mortgagor or trustor or owner of the land.

Required Timely Recording of the Deed of Full Reconveyance

If a deed of full reconveyance is not issued and recorded within 60 calendar days of satisfaction of the debt, the beneficiary, upon receipt of a written request by the trustor or trustor’s heirs, successors in interest, authorized agent thereof, or assignee, may execute and acknowledge a document pursuant to Civil Code Section 2934a substituting another as trustee and issue a deed of full reconveyance.

If a deed of full reconveyance is not executed and recorded either in accordance with the previous paragraph or within 21 days of the trustee’s receipt of all documents, instruments, instructions and fees necessary to effect the reconveyance, then within 75 calendar days of satisfaction of the debt or obligation a title insurance company may prepare and record a release of the obligation. The release shall be deemed, when recorded, to be the equivalent of a reconveyance of the deed of trust. However, at least 10 days prior to issuance and recording of a full release pursuant to this paragraph, the title insurance company shall mail by first-class mail, with postage prepaid, the

intention to release the debt or obligation to the trustee, trustor, and beneficiary of record, or their successor in interest of record, at the last known address for each party.

The release shall set forth:

1. the name of the beneficiary;

2. the name of the trustor;

3. the recording reference to the deed of trust;

4. a recital that the obligation or debt secured by the deed of trust has been paid in full; and

5. the date and amount of payment.

Sanctions and penalties. Failure to comply with Civil Code Section 2941 makes the violator liable to the person affected for all damages sustained by reason of the violation.

Further, the violator must forfeit to that person the sum of $300. In addition, Civil Code Section 2941.5 provides that every person who willfully violates Section 2941 is guilty of a misdemeanor punishable by a fine of not less than $50 nor more than $400, or by imprisonment in a county jail not to exceed 6 months, or by both such fine and imprisonment.

Fees for services rendered. A trustee, beneficiary or mortgagee may charge a reasonable fee to the trustor or mortgagor or the owner of the land for services involved in the preparation, execution and recordation of the full reconveyance including, but not limited to, document preparation and forwarding services, plus any additional official fees that may be required (e.g., notary and recording).

Fees charged for the foregoing are not to exceed $65 plus official fees. These fees are conclusively presumed to be reasonable. It is important to note that such fees cannot be charged prior to the opening of a bona fide escrow, or more than 60 days prior to full satisfaction of the debt or obligation secured by the deed of trust or mortgage.

Other Characteristics/Essentials of Mortgages and Trust Deeds

The parties and the property must be adequately identified in the instruments and the instruments signed and delivered. The parties should be named in the security instrument in the same manner they are named in the note. Acknowledgment of the security instrument is necessary for recording purposes.

A valid mortgage or trust deed must have a valid underlying debt or obligation, meaning the obligation must have consideration, otherwise the security instrument secures nothing because apart from the debt the security instrument has no meaning and no lien attaches to the property.

One security instrument can secure several debts or obligations (whether present or future), and one debt or obligation can be secured by several security instruments on several parcels of land. Notes in series which are secured by a single deed of trust or more than one deed of trust of equal priority, or notes providing fractionalized interests to non-exempt investors are securities requiring either issuance pursuant to a qualified exemption or pursuant to a permit from the Department of Corporations or the Securities and Exchange Commission (depending upon whether the securities are to be issued intra- or both intra- and interstate).

Unless prohibited by law, fractional interests as well as the entire fee interest may be mortgaged, but lenders are generally reluctant to lend on partial estates. No requirement exists that the trustor be the debtor. One person may give a mortgage or trust deed to secure the debt of another, or as a guaranty. However, the debtor and trustor are usually the same person.

A transaction which is really a mortgage transaction disguised to appear otherwise (grant deed to secure a loan, for example) will be subject to the “one form of action” and antideficiency rules.

A mortgagee or beneficiary under a power of sale will usually prefer the publicly held, privately conducted foreclosure sale (trustee’s sale) if the real property is valuable enough to satisfy the debt and expenses of sale because the power of sale eliminates the debtor’s right of redemption subsequent to the sale. If the property’s sale will not satisfy the debt, the lender/creditor will generally initiate a judicial sale and seek a deficiency judgment following the foreclosure sale, if a deficiency judgment is allowable. The remedy is the creditor’s choice.