Mortgage Vs. Deed

A deed is a legal document. A person who wishes to sell or give away real estate, called a "grantor," creates a deed and signs it. In order to be valid, a deed needs to clearly describe the property being given up, using the property's address, a physical description of the property or the assigned parcel number. The language in deeds is important, because a deed is a contract, and both the grantor and the new owner will be held to any promises made in the deed.

Even if a grantor has a valid, signed deed, the deed doesn't begin to operate legally until the grantor delivers it. "Delivery" of deeds does not necessarily mean a physical transfer to the new owner; it can also be made by physical transfer to an escrow company or another party who will then give it to the new owner when a sale occurs. The transfer is only a legal delivery if the grantor means to completely transfer ownership by handing over the deed. Technically, the new owner must also "accept" the deed, but most states assume acceptance unless the new owner objects.

A mortgage is very different from a deed. In a mortgage, a property owner transfers the legal title of his property to another party, the "creditor," and the creditor treats the property as a guarantee that the property owner will pay back the debt. Mortgage contracts must be written down; they can't be made verbally.

While a mortgage may make use of a deed to transfer the property to the creditor, the mortgage isn't supposed to be a permanent transfer. Usually, the property's owner still lives in or uses the property. In half of the states, the creditor who holds the mortgage doesn't have the right to use the property or kick the owner out, unless the owner doesn't make payments on the mortgage and foreclosure begins. The other half of the states do technically give the creditor holding the mortgage the right to do anything with the property. Once the debt is completely paid off, the creditor will usually return the legal ownership of the property, often by use of a deed.

The rules of specific mortgages are spelled out in the mortgage contracts, and each mortgage can be very different. In a "typical" mortgage, however, when the property owner makes late payments for a significant period of time — always spelled out in the mortgage contract — the creditor holding the mortgage then has the right to foreclose, meaning he can kick the owner out and take complete ownership and possession of the property, or even sell the property to satisfy the debt.