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Arizona Real Estate Law
by Christopher A. Combs
The following is for informational purposes
only and is not intended as definitive legal or tax advice. You
should not act upon this information without seeking independent
legal counsel. If you desire legal, tax or other professional advice,
please contact your attorney, tax advisor or other professional
consultant.
Deed of Trust Recommended for Loan Secured by Real Property
Question: When we owned property in Connecticut the loan was secured by a mortgage on the property. My understanding is that in Arizona, a deed of trust is used rather than a mortgage for a loan secured by real property. We are now buying a fourplex in Glendale, and because we are more familiar with mortgages, we would like to have our loan secured by a mortgage, not a deed of trust. Is there an Arizona law that only deeds of trust can be used? In other words, could we require a lender to secure the loan with a mortgage rather than a deed of trust? What are the differences between a mortgage and a deed of trust?
Answer: One, there is no Arizona law requiring the use of a deed of trust. Two, although you can request your lender to use a mortgage, most lenders will require a deed of trust. Three, the differences between a mortgage and a deed of trust are significant. A mortgage can only be foreclosed through court proceedings by a judge, while a deed of trust can be foreclosed non-judicially by a trustee's sale (typically at the office of a title company). Significant time and expense are saved by a non-judicial trustee's sale. In addition, after a foreclosure by trustee's sale, the borrower has no right of redemption, i.e., the right to buy the property back from the new owner, and the property can be immediately sold by the new owner. After a court-ordered foreclosure sale of a mortgage, the property cannot be immediately sold by the new owner because the borrower has the right of redemption. The disadvantage to a lender of a deed of trust in comparison to a mortgage is that, a borrower has the right of reinstatement with a deed of trust, but not with a mortgage. In other words, at any time before the trustee's sale the borrower can pay the delinquent monthly payments and the costs of the trustee's sale, and thus stop foreclosure proceedings. With a court-ordered foreclosure sale, however, the borrower must generally pay off the entire mortgage balance and the costs of sale or lose the property.
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