What is foreclosure?
Foreclosure is the legal process
by which a mortgage company can obtain legal ownership of a
property. It relinquishes a home owner from any and all right to
the property and evicts the homeowner from the premises.
When a home owner neglects to make
the monthly mortgage payment on his or her house, resulting in a
default against the mortgage, a lender will foreclosure on the home in order to sell it at a public auction
to recover the money owed by the loan. If any money
remains after the loan is paid off, the remainder is applied towards
any
junior liens and encumbrances in the order of their priority.
Any further excess would be paid to the owner.
In Arizona, there are two types of
foreclosure options available to a lender: 1) foreclosure on a Deed
of Trust (often referred to as a non-judicial foreclosure) and 2)
foreclosure on a mortgage (referred to as a judicial
foreclosure).
A Deed of Trust (also referred to as a Trust
Deed) is a security
document used to transfer "bare" or "naked"
title (because of its limited rights) from the borrower (known as
the trustor) to a third party, known as a trustee. The trustee
holds title for the benefit of the lender (known as a
beneficiary) until the borrower pays off the note or lien against
the property. The deed of trust is
recorded with the county and shows that there is a lien against the
home. Lenders prefer deeds of trust because foreclosure is swift and easy
due to the lack of judicial proceedings that must take
place to repossess the home. The only requirement is for the
trustee to give the appropriate statutory notices as outlined in Arizona law (click
here for more information on the foreclosure process in Arizona).
A mortgage is a security document
that, in a majority of the states, allows the borrower (referred to
as the mortgagor) to retain title of the property while using the
property as security for a loan by placing a lien on the property by
the lender (referred to as the mortgagee). When the borrower
pays off the loan, the lender gives the borrower a satisfaction of
mortgage that, when recorded, removes the lien. A mortgage
deed can only be foreclosed through court action.
Since most homes have a deed of
trust against the property (versus a mortgage), the non-judicial
foreclosure is the most common foreclosure process in
Arizona.
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