Question: In Arizona a deed of trust is used rather than a mortgage for a loan secured by a home or other real property. Other states, such as our home state of Massachusetts, use mortgages rather than deeds of trust. Is there an Arizona law that only deeds of trust must be used?
Answer: No. Arizona law provides for mortgages, and since 1971 Arizona law also provides for deeds of trust. Most mortgage lenders, however, prefer deeds of trust for several reasons.
One, a mortgage can only be foreclosed judicially by court proceedings, i.e., judicial foreclosure sale, while a deed of trust can be foreclosed either by a judicial foreclosure sale, or, most frequently, by a trustee’s sale (typically at the courthouse steps or at a title company office). Mortgage lenders save significant time and expense by a trustee’s sale.
Second, after a foreclosure by trustee’s sale the buyer can sell the property immediately. After a judicial foreclosure, however, the borrower has the right of redemption, i.e., the right to buy the property back from the buyer, usually within six months.
The main disadvantage of a trustee’s sale to a lender is that a borrower has the right of reinstatement with a deed of trust. In other words, at any time before the trustee’s sale the borrower can stop the trustee’s sale by reinstating the loan, i.e., paying only the delinquent monthly payments and the costs of the trustee’s sale. In a judicial foreclosure, however, the entire loan balance is generally required to be paid by the borrower before the judicial foreclosure can be cancelled.