What is the difference between a deed of trust and a mortgage?

Civil Code section 2924 states that “every transfer of an interest in property, other than in trust, made only as a security for the performance of another act, is to be deemed a mortgage.” The “other than in trust” portion of the statute refers only to express trusts, however, because “under a deed of trust the trustee obtains none of the incidents of ownership, other than the right to convey upon default.” (Blair v. Blair (1941) 44 Cal.App.2d 140, 146.)

As such, the functionality of the deed of trust is more or less identical to a mortgage. In terms of semantics, however, the big difference is that the mortgage is a two-party transaction whereas the deed of trust involves three. In addition, there is also a difference with how title actually passes with deeds of trust.

Filing a successful partition complaint can be quite difficult depending on the circumstances. There are a great number of statutes that need to be precisely followed, otherwise the court is likely to toss the complaint out on a motion to demurrer. 

Of the many rules that must be followed are those concerning “joinder.” This is the legal term for ensuring that the complaint names all necessary and indispensable defendants. The court doesn’t want to issue a judgment and find out later that someone’s interests were negatively affected merely because the plaintiff never invited them to the litigation. 

Naturally, partitions have their own special joinder rules. This can be daunting for first-time litigants, especially when they’re faced with a deed of trust. A deed of a trust is similar to a mortgage, but its three-party structure makes it a joinder nightmare. 

In these situations, the right attorney can make all the difference. At Underwood Law Firm, our attorneys are well-versed enough in the practice and procedure of partition actions to help you get the answers and relief you need. 

What is a deed of trust?

A deed of trust is a security instrument, just like a mortgage. It allows a borrower to obtain funds from a lender by giving that lender real property as a security. That way, if borrower fails to pay on time, the lender can foreclose on the home. 

If that sounds similar to a mortgage, that’s because the two are so similar as to be functionally identical for most people. In fact, twice our Supreme Court has recognized that “deeds of trust, except for the passage of title for the purposes of the trust, are practically and substantially only mortgages with a power of sale.” (Monterey S. P. Partnership v. W. L. Bangham, Inc. (1989) 49 Cal.3d 454, 460, citing Bank of Italy etc. Assn. v. Bentley (1933) 217 Cal. 644, 657.)

“[A]lthough the deed of trust technically conveys title… from the trustor-debtor to the trustee, the extent of the trustee’s interest in the property is limited to what is necessary to enforce the provisions of the deed of trust.” (Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 508, overturned in part by Yvanova v. New Centruty Mortgage Corp. (2016) 62 Cal.4th 919, 943, fn. 13.)

Put differently, the trustee “holds a power of sale,” and if the debtor defaults on the loan, “the beneficiary may demand that the trustee conduct a nonjudicial foreclosure sale.” (Yvanova, 62 Cal.4th at 926.) Thus, “in practical effect, if not for legal parlance, a deed of trust is a lien on the property.” (Robin v. Crowell (2020) 55 Cal.App.5th 727, 742.)

That isn’t to say, though, that there aren’t differences that can become quite significant once litigation is underway. 

What’s the difference between a deed of trust and a mortgage?

The main difference between a mortgage and deed of trust is the number of parties involved with the transaction. With a mortgage, there are only two: the borrower and the lender (usually a bank). 

The bank loans the borrower money, and in return receives a mortgage as security. If the borrower fails to make payments, the bank can take the loan to courts to proceed with judicial foreclosure to force a sale of the property to recuperate the balance still owed on the mortgage. 

With a deed of trust, though, there are actually three parties. The borrower is called the trustor, and the lender is called the beneficiary. But there’s a third party, called the trustee, that actually holds the deed of trust. If the borrower fails to pay on time in this scenario, then the beneficiary isn’t the one to sell the property via instituting foreclosure. Instead, the trustee retains the power of sale, and they’re the ones responsible for selling the house whenever the beneficiary informs them that the borrower is delinquent. 

With all that said, the substantive effect of these differences are virtually meaningless absent a few, select instances. Once such instance, though, is the filing of a partition suit. 

Who needs to be named as a defendant in a partition?

Under Code of Civil Procedure section 872.230, a partition complaint needs to list all “interests” in the property.  Usually, this means that the plaintiff in a partition needs to state the interest(s) of the other co-owner(s). 

“Interest,” however, also means “liens.” (CCP § 872.510.) And under Code of Civil Procedure Section 872.010, “liens” include deeds of trust. A plaintiff reading all those statutes, then, would not be wrong for thinking that, if their property is subject to a deed of trust, they would need to join to the suit the trustee and beneficiary. 

This is half-right. While a plaintiff would be free to joint the deed of trust trustee to the lawsuit, that does not mean they are required to do so. 

Are you required to join trustees in a partition lawsuit?

Usually, no. 

The Legislative Committee Comment to section 872.230 actually limits the “naming interests” requirement to “only those interests the plaintiff reasonably believes will be materially affected by the partition action.”

As such, both the trustee and beneficiary can be named, because the trustee holds a record title interest. But it would be feasible for a plaintiff to reasonably believe that the trustee on a deed of trust would not be materially affected by the partition, and thus not name them in the complaint as a defendant.

This is because the extent of the trustee’s interest in the property is very limited. (Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 508.) Either they reconvey full title to the borrower once they pay off the debt, or exercise the power of sale on request of the beneficiary. 

In line with the above, “because a deed of trust typically secures a debt owed the beneficiary, it is the beneficiary, not the trustee, whose economic interests are threatened when the existence or priority of the deed of trust is challenged.” (Monterey S. P. Partnership v. W.L. Bangham, Inc. (1989) 49 Cal.3d 454, 461.) 

Thus, naming the deed of trust trustee is usually not required to commence a successful partition lawsuit.  

How the Lawyers at Underwood Law Firm Can Help

For first-time litigants, just trying to start a lawsuit can wind up becoming an ordeal. Adding in complex questions of joinder can make the experience even more daunting. For the inexperienced litigant, the next steps might seem impossible to determine. Fortunately, the lawyers at Underwood Law Firm specialize in partition actions and solving the difficult problems that can accompany them. If you have found yourself in one of these situations, then please do not hesitate to contact us today.