In many states, lenders use conventional mortgages as the primary security document for the underlying property during a real estate transaction. However, if you are buying a home in Arizona, you are likely to use a Deed of Trust as security for the property. Although a mortgage and Deed of Trust may seem similar, there are some key differences. If you are considering buying property in Arizona, you will need to know: What is a Deed of Trust?
What is a Deed of Trust?
Like a mortgage, a Deed of Trust is a real estate security document. Unlike a mortgage which only involves a borrower and a lender, these documents have three parties?the borrower, the lender, and the trustee. The trustee is usually an escrow company or an attorney. Another critical difference concerns the lender?s available remedies when a buyer defaults on the agreement.
When a borrower defaults on a mortgage loan, ordinarily, the only remedy for the lender is to go to court and obtain a judgment for judicial foreclosure. The lender will then have to go through a long and complex process before being paid from the proceeds of the foreclosure sale of the property. After a Deed of Trust breach, the lender has two options, 1) going through the same judicial procedures as a mortgage default, or 2) invoking the power of sale in the deed.
The Power of Sale
According to Arizona law, if a borrower defaults on a Deed of Trust, the lender can initiate foreclosure by recording a Notice of Trustee’s Sale. The lender must then give the borrower proper notice and wait a specific number of days before conducting a Trustee?s sale. A lender can undertake this process without involving a court. During the notice period, the borrower will have the opportunity to pay back what is due to the lender and reinstate the Deed of Trust. If the borrower fails to pay, the lender can move forward with the sale process.
Removal of a Deed of Trust
Under Arizona law, breach of contract claims must be brought within six years of default. This time limitation applies to Deed of Trust default actions. Therefore, Deed of Trust lenders must act promptly if they want to enforce their rights. That being said, it’s uncommon for a lender to allow a property to remain in default past the six-year limitations period. In most situations, a borrower who defaults on a Deed of Trust will see swift action from the lender.
If a Deed of Trust remains on a property beyond the statute of limitations, it can create a cloud on the owner?s title. In that case, the owner may need to file a quiet title action for its removal. The law also provides that the borrower may recover their attorney?s fees, damages, and costs if the lien is not removed within a certain number of days after demand.
Release of a Deed of Trust
Property subject to a Deed of Trust will have the deed until the loan is paid. If a borrower wanted to sell the home in the future, they would have to pay the loan to receive a release of the deed. Otherwise, the new owner would have to accept the title subject to the Deed of Trust.
If you are considering buying property in Arizona, it’s essential to understand your rights and obligations under a Deed of Trust. Further, if you are a borrower, lender, or trustee, with questions concerning a Deed of Trust, it’s vital that you consult with an experienced Arizona real estate attorney to assess your situation.
Laura B. Bramnick is an Arizona real estate attorney with the knowledge and experience you need to protect your interests during every stage of your real estate matter. If you are seeking an exceptional, client-driven real estate lawyer in Scottsdale, Phoenix, Sedona, and throughout the State of Arizona, contact Laura B. Bramnick to schedule your consultation.