As a mortgage buying company and due to our knowledge and experience in the industry, American Equity Funding is often asked for clarification on the various types of lending agreements that are available as well as which ones are best and why. The following will define, compare, and explain the basics of mortgages, deeds of trust, promissory notes, and land contracts:


A mortgage is a security interest in property held by a lender as a security for a debt, usually a loan of money but not always. In place of money, a mortgage is given to the seller of a particular property to secure the debt. Contrary to many people’s understanding, a mortgage is NOT a debt but rather the lender’s security for a debt. Essentially, a mortgage is a security for a loan. American Equity Funding can help you as a mortgage holder as a mortgage buying company.

Keys on mortgage note and blueprints

Mortgages are mostly used to secure real property; however, in some jurisdictions, they can also be used to secure personal property. The word mortgage is derived from a Law French term meaning “dead pledge” and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. If the borrower defaults on the loan, the lender can then foreclose, meaning they can sell the mortgaged property and keep as much of the proceeds as necessary to pay off the debt.

A mortgage is usually recorded with a county clerk to notify the public that money is owed on the property and must be paid off if the borrower sells or otherwise conveys the property. This is discovered when a title search is done preparatory to title insurance being issued.

Deeds of Trust

Deed of trusts differ from mortgages in that there are three parties involved; the lender (beneficiary), the borrower (trustor), and the trustee. Deeds of trust transactions are structured in the following five steps: 


1. The lender gives the borrower money to buy a property.

2. The borrower tenders the money to the seller.

3. The seller executes a grant deed, giving the property to the borrower.

4. The borrower immediately executes a deed of trust, giving the property to the trustee to be held in trust for the lender until the debt is satisfied, or in the case of default, foreclosed upon.

5. Upon full satisfaction of the debt, the lender instructs the trustee to transfer the property back to the borrower by reconveyance.

States that typically utilize deeds of trust are; Alaska, Arizona, California, Colorado, the District of Columbia, Idaho, Maryland, Mississippi, Missouri, Montana, Nebraska, Nevada, North Carolina, Oregon, Tennessee, Texas, Utah, Virginia, Washington, and West Virginia.

Comparison: In deeds of trust, the third party holds the legal title while in the context of mortgages, the borrower gives legal title directly to the lender. 

The advantage of a deed of trust over a mortgage is that is most states that use deeds of trust, the lender conveys the right to the trustee, without suing in court, to give written legal notice to have the property auctioned to the highest bidder in case the borrower defaults on the loan. This action greatly reduces the time and expense of foreclosures. 

Promissory Notes

A promissory note is a legal instrument in which the issuer promises, in writing, to pay a sum of money to the payee either at a fixed or determinable future time, or on demand of the payee under specific terms. A promissory note is typically the means used as the promise of payment connected to a deed of trust or mortgage.

Promissory note

Land contracts

A land contract is also known by many other titles such as bond for title, contract for deed, agreement for deed, land installment contract, or an installment sale agreement. It is a contract between a seller and buyer of property in which the seller provides financing to the buyer to purchase the property for an agreed-upon price, and in return, the buyer repays the loan in installments. Under a land contract, the seller retains the legal title to the property while permitting the buyer to take possession of the property. 

Manager working in the office ,property for sale concept. Mortgage Buying Company

The sale price is typically paid in periodic installments amortized over a predetermined time period. When the full purchase price plus any interest is paid, the seller is obligated to convey legal title of the property to the buyer. An initial down payment from the buyer to the seller is usually also required. 

The legal status of land contracts varies from region to region. Reasons for using a land contract might be to help sell land which is low priced and not easily financed through a bank. A land contract could also be beneficial when a buyer has credit issues as this type of financing provides some convenience to the seller in the case as default. A land contract can also save on closing costs and is helpful when both parties have limited cash.

Before choosing which type of agreement will adequately secure your financing needs such as a mortgage, deed of trust, promissory note, or land contract, American Equity Funding highly recommends contacting an attorney in your local state and county as laws vary from state to state and to ensure all compliance with state and federal licensing laws. American Equity Funding is here to be your mortgage buying company.

Steve Whitlock

Owner, American Equity Funding