(a) Mortgages and Deeds of Trust: What is the Difference?
In Arizona, mortgages are less common than deeds of trust for a very simple reason: a deed of trust provides a better security interest for the lender. A mortgage is a two-party instrument that is basically a pledge of real property given by a borrower (a mortgager) to a lender (a mortgagee) to secure the payment of a debt. On the other hand, a deed of trust is a three-party instrument in which the borrower (trustor) conveys legal title to the property to the trustee. The trustee holds legal title to the property on behalf of the lender (beneficiary). The beneficiary's remedies under the deed of trust include those available to the mortgagee under a mortgage, as well as a non-judicial private power of sale (better known as a trustees sale) which are not available with mortgages. Except for certain "purchase money" residential loans, if a borrower defaults under either a mortgage or a deed of trust, the lender may foreclose upon the property or sue on the note.
(b) Foreclosure Options for Lenders.
(i) Judicial Foreclosure of a Mortgage:
When a borrower defaults under a mortgage, the mortgagee (lender) may seek to enforce either the security by judicial foreŽclosure (in which case the security is sold by court order), or the mortgagee may elect to sue directly on the original indebtedness that is secured by the mortgage. In Arizona, a mortgagee cannot simultaneously maintain a judicial foreclosure and pursue a separate lawsuit on the debt. This rule is set forth in A.R.S. § 33-722, which provides, in relevant part, that the mortgagee may either sue directly on the debt (thereby waiving the mortgage) or judicially foreclose the mortgage.
(ii) Options for a Beneficiary Under a Deed of Trust:
A beneficiary under a deed of trust has two options to foreclose: the lender may: (a) foreclose on the property by a judicial sale just like a mortgagee; or (b) foreclose by a non-judicial trustees sale. The nonjudicial foreclosure sale is, by far, the (which is by far, the single most frequently utilized method of forecloŽsure in Arizona. By using a nonjudicial foreclosure sale, the lender is able to simultaneously sell the collateral (the borrower's home) and sue directly on the note (which would be prohibited if the lender had pursued judicial foreclosure).
(c) Filing a Complaint to Stop a Foreclosure Sale.
Particularly in these difficult economic times, Courts have been willing to consider arguments made by homeowners to stop foreclosure sales and save their homes. One strategy for stopping a non-judicial trustee's sale is to determine whether the trustee provided formal notice to the homeowner, as required under Arizona Law. When a homeowner believes that legal notice was not provided by the trustee, the homeowner may file a complaint, requesting that the Court issue an order staying the sale, pending a resolution of the case. Homeowners can also challenge the amount of mortgage arrears claimed by lenders or loan servicing companies. These tools can be used to delay, and, in certain instances, stop a trustee's sale.
The applicable statutory language (from the Arizona Revised Statutes) that may be useful to a homeowner wishing to file a legal challenge in court to a trustee's sale is as follows:
33-808. Notice of trustee's sale
A. The trustee shall give written notice of the time and place of sale legally describing the trust property to be sold by each of the following methods:
- Recording a notice in the office of the recorder of each county where the trust property is situated.
- Giving notice as provided in section 33-809 to the extent applicable.
- Posting a copy of the notice of sale, at least twenty days before the date of sale in some conspicuous place on the trust property to be sold, if posting can be accomplished without a breach of the peace. If access to the trust property is denied because a common entrance to the property is restricted by a limited access gate or similar impediment, the property shall be posted by posting notice at that gate or impediment. Notice shall also be posted at one of the places provided for posting public notices at any building that serves as a location of the superior court in the county where the trust property is to be sold. Posting is deemed completed on the date the trust property is posted. The posting of notice at the superior court location is deemed a ministerial act.
- Publication of the notice of sale in a newspaper of general circulation in each county in which the trust property to be sold is situated. The notice of sale shall be published at least once a week for four consecutive weeks. The last date of publication shall not be less than ten days prior to the date of sale. Publication is deemed completed on the date of the first of the four publications of the notice of sale pursuant to this paragraph
B. The sale shall be held at the time and place designated in the notice of sale on a day other than a Saturday or legal holiday between 9:00 a.m. and 5:00 p.m. mountain standard time at a specified place on the trust property, at a specified place at any building that serves as a location of the superior court or at a specified place at a place of business of the trustee, in any county in which part of the trust property to be sold is situated.
C. The notice of sale shall contain:
- The date, time and place of the sale. The date, time and place shall be set pursuant to section 33-807, subsection D. The date shall be no sooner than the ninety-first day after the date that the notice of sale was recorded.
- The street address, if any, or identifiable location as well as the legal description of the trust property.
- The county assessor's tax parcel number for the trust property or the tax parcel number of a larger parcel of which the trust property is a part.
- The original principal balance as shown on the deed of trust. If the amount is not shown on the deed of trust, it shall be listed as "unspecified".
- The names and addresses, as of the date the notice of sale is recorded, of the beneficiary and the trustee, the name and address of the original trustor as stated in the deed of trust, the signature of the trustee and the basis for the trustee's qualification pursuant to section 33-803, subsection A, including an express statement of the paragraph under subsection A on which the qualification is based. The address of the beneficiary shall not be in care of the trustee.
- The telephone number of the trustee.
- The name of the state or federal licensing or regulatory body or controlling agency of the trustee as prescribed by section 33-803, subsection A.
D. The notice of sale shall be sufficient if made in substantially the following form:
Notice of Trustee's Sale
The following legally described trust property will be sold, pursuant to the power of sale under that certain trust deed recorded in docket or book _______________________ at page __________ records of ______________ county, Arizona, at public auction to the highest bidder at (specific place of sale as permitted by law) _______________, in _______________ county, in or near _______________, Arizona, on ________, ____, at ___________ o'clock ___m. of said day:
(street address, if any, or identifiable
location of trust property)
(legal description of trust property)
Tax parcel number _______________
Original principal balance $________________________
Name and address of beneficiary ______________________________
Name and address of original trustor _________________________
Name, address and telephone number of trustee ________________
Signature of trustee _____________________________
Manner of trustee qualification ___________________________
Name of trustee's regulator _______________________________
Dated this _____________ day of ______________, ____.
E. Any error or omission in the information required by subsection C or D of this section, other than an error in the legal description of the trust property or an error in the date, time or place of sale, shall not invalidate a trustee's sale. Any error in the legal description of the trust property shall not invalidate a trustee's sale if considered as a whole the information provided is sufficient to identify the trust property being sold. If there is an error or omission in the legal description so that the trust property cannot be identified, or if there is an error in the date, time or place of sale, the trustee shall record a cancellation of notice of sale. The trustee or any person furnishing information to the trustee shall not be subject to liability for any error or omission in the information required by subsection C of this section except for the wilful and intentional failure to provide such information. This subsection does not apply to claims made by an insured under any policy of title insurance.
F. The notice of trustee sale may not be rerecorded for any reason. This subsection does not prohibit the recording of a new or subsequent notice of sale regarding the same property.