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Understanding Mortgage vs. Deed of Trust

Understanding Mortgage vs. Deed of Trust

 Question: In Arizona, a deed of trust can be used as well as a mortgage to secure a loan on a home. Other states use only mortgages. Why does Arizona also have deeds of trust?

  Answer: Since 1971 Arizona has had both mortgages and deeds of trust to secure loans on a home (or other real property). Most lenders in Arizona now require a deed of trust rather than a mortgage to secure a loan on a home for two reasons.

One, a deed of trust can be foreclosed non-judicially by a trustee’s sale, while a mortgage can only be foreclosed by an order of a Superior Court judge. Therefore, significant time and expense to the lender can be saved by a trustee’s sale.

Second, after a deed of trust is foreclosed by a trustee’s sale the homeowner has no right of redemption, i.e., the right to buy the home back from the buyer at the trustee’s sale. Therefore, the home can be immediately sold by the buyer to another buyer. After a court-ordered foreclosure sale of a mortgage, however, the home cannot be immediately sold by the buyer because, under the right of redemption, the homeowner can buy the home back from the buyer up to six months after the court-ordered foreclosure sale of a mortgage.

There is one primary disadvantage to a lender in the foreclosure of a deed of trust by a trustee’s sale in comparison to a court-ordered foreclosure sale of a mortgage, is that the homeowner has the right of reinstatement. In other words, at any time before the date of the trustee’s sale the homeowner can cancel the trustee’s sale and reinstate the deed of trust by paying just the delinquent monthly payments, late fees, interest, and the costs of the trustee’s sale. If there is a foreclosure sale of a mortgage, however, the homeowner generally must pay off the entire mortgage balance, late fees, interest, and the costs of sale to cancel the judicial foreclosure sale.

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