A mortgage has two parties: the lender and the borrower. Mortgages and deeds of trust both use the borrower’s property as the source of repayment if the loan goes into default. Whichever document is used, the purpose of both types of documents is to secure the note and offer protection to the lender. In a mortgage, there is a transfer of interest in the asset. Ownership is evidenced by an undivided interest in a pool of mortgage or trust … The term mortgage is defined under Section 58 (a), Transfer of Property Act, 1882. (1) To hypothecate as security, real property for the payment of a debt. A letter of hypothecation is the usual instrument for carrying out the pledge. However, they differ as to the parties involved and the procedures that a lender follows … The trustee has the power to sell the property in the event of default, without a court procedure. They are common in states such as Maryland, where the title theory of hypothecation mortgages is used. 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If your property is located in another state so you specifically designed the trust to avoid ancillary probate—two separate probates in two states under different laws—your trust is useless until it's funded with the real estate. 2. Hypothecation applies to movable assets only like goods, vehicles, etc. Any time that the mortgage is not paid in full, or if the borrower defaults for another reason, the trustee passes the title to the beneficiary, or uses power of sale. It differs from the mortgage in a number of important respects. In general, the tenure for which the funds extended to the borrower by the bank is longer in mortgage, than in hypothecation. This means that the trustee's signature is generally the only signature that can convey the title back out of the trust. Hypothecation agreement is the legal document in hypothecation. Further, the owner has fallen on difficult financial circumstances and is unable to find assets or sources of income to keep covering the regular monthly payments. In real estate in the United States, a deed of trust or trust deed is a legal instrument which is used to create a security interest in real property wherein legal title in real property is transferred to a trustee, which holds it as security for a loan between a borrower and lender. When creating an hypothecation mortgage, some states encourage the use of a trust deed in place of an ordinary mortgage or promissory notes. Mortgage: Deed of Trust: Direct agreement between lender and borrower: Agreement between beneficiary, trustor, and trustee : In case of default, the mortgage goes through a judicial foreclosure process: In case of default, the judiciary process is bypassed: Title to property goes to the lender if borrower defaults: Title to property is transferred to the trustee: Definitions. 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