by Terri Kleinberg

Created on: June 01, 2009

There are basically three instruments used to secure a loan against the title of a piece of real property. The main difference between these three instruments is the foreclosure procedures.

A contract of sale, the oldest of all the instruments, is an agreement between private individuals and doesn't involve a bank or other institutions. The buyer and seller in a private contract can dictate their own terms of default and foreclosure, as long as these provisions follow the law of the state. This can often end up in court if either of the parties feel the provisions are too difficult. Many courts will follow the procedures for a mortgage foreclosure, if the contract is deemed to be unfair.

A mortgage. An instrument that is recorded against a piece of property. This followed the contract of sale and was used in England as early as the 1600's. This instrument is only used for properties over 39 acres in most states. A mortgage requires a bank or other party to wait a full twelve consecutive months of unpaid payments they can take title of the property. They must then wait another twelve months before they can sell the property. Obviously this means the lending institution must wait at least 2 years before their money is returned. Most modern lenders will not allow a mortgage to be used. The mortgage was once the only instrument allowed for properties consisting of 40 or more acres. It prevented people from risking their family farm and their livelihood on risky ventures. The United States Department of Agriculture may be the only place that currently uses it.

A Trust Deed. The newest instrument that is used to secure a loan against the title of a piece of property is the one preferred method of lending for most financial institutions. The foreclosure provisions are pretty cut and dried. If a payment is 30 days late the lender can file a Notice of Default. This gives the borrower 30 days to bring the loan current including all taxes, insurance and any fees. If the loan isn't current within the 30 day period a Trustee's Sale is scheduled in 90 days. The sale is conducted on the steps of the county courthouse by the Trustee, usually a title company or attorney. The borrower can redeem the property up to 5 days prior to the Trustee's Sale by bringing the delinquency current including the payments and all costs.

When a borrower applies for a loan at a bank or other lender the

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