Michigan is a mortgage state. A mortgage is a lien on property to secure the loan if the borrower fails to repay the money borrowed plus interest. The borrower remains the owner of the property subject to the mortgage lien unless foreclosure occurs. Deeds of Trust are more commonly used in some other states, such as California, to provide a lender with a lien on real estate to secure a loan.
A deed of trust differs from a mortgage in a number of ways. A deed of trust, which also involves a lender and a borrower, includes a third party to the transaction, the trustee. A deed of trust requires legal title to the property to be held by a neutral third-party such as a bank, escrow account or title company, while the equitable title, as well as, possession, use, and responsibility for the property, remain with the borrower. The trustee then holds legal title until the borrower pays the debt in full, at which time the legal title to the property transfers to the borrower. The trustee takes full control of the property in the event of a default by the borrower. The trustee would then transfer the property to lender.
Typically, a lender in the mortgage context must pursue a foreclosure through the state court system in order to gain control over the property. A minority of states, including Michigan, allow lenders to foreclose on the property through advertisement without the assistance and supervision of the courts.
With a deed of trust, a lender may by-pass the court system completely by initiating a nonjudicial foreclosure if the deed of trust contains a power of sale clause. State law and the terms of the trust instrument govern the procedural requirements for nonjudicial foreclosures.
Please contact an attorney at Demorest Law Firm if you need assistance with a mortgage or deed of trust. We would be glad to assist you.
