The differences between a mortgage or trust deed is important only in the event of a default.
The homeowner can lose his property very quickly if he signed over a trust deed or security deed with power of sale. If his mortgage or trust deed can be foreclosed on by judicial process, he has more time – due to the process that must go through different stages until the sale can take place.
Statutes differ from state to state. In Michigan, a mortgage that creates a lien on property is generally sold by power of sale procedures. Florida, however, uses the judicial process to foreclose on a mortgage.
Judicial Foreclosure – The lender files suit against a borrower after the borrower has been delinquent in paying monies owed or performing some other duty required by the terms of the mortgage or deed of trust.
Before the suit is filed, the lender usually sends the borrower a certified letter notifying him of the breach of the terms, and giving him an opportunity to bring the loan current. If not, the lender files the foreclosure and “accelerates the note” secured by the mortgage.
In Florida, if the default isn’t cured within a statutory period, usually 20 days from the time certain events occur, the lender will file a motion for final judgment. Most of the time the lender will even accept reinstatement of the mortgage even after this motion has been granted by the court.
Sale – Once the sale date has been set, the lenders can become more difficult to deal with. If the loan is guaranteed by the FHA or VA, they can be made to accept a reinstatement, almost up until the time of the sale.
If the borrower does not reinstate the loan, the property is sold at public auction. Some states allow homeowners who lost their property in foreclosure to repurchase the property – for all cash in the amount of the highest foreclosure bid – within a specified redemption period.
Power of sale – This method of foreclosure is much simpler than a judicial foreclosure. The “power of sale” clause gives the trustee or grantee (lender) the right to sell the property at public auction without filing a lawsuit.
The lender tells the trustee to record a default. The trustee then verifies with the borrower that a default has occurred. If the default has occurred, the trustee will proceed through the stages prescribed by a law until the property is reinstated or sold at public auction.
Under a security deed, the title is already vested with the lender. The lender’s objective in foreclosing is to obtain relief from the loan being in default and extinguish the borrower’s equitable title.
DISCLAIMER: Please consult with proper legal counsel before implementing any of the ideas put forth here. The foreclosure process is very complex. All 50 states, plus many counties and cities have different laws and regulations. Furthermore, those laws and regulations are always subject to change. No one will be held liable for your actions or lack thereof.
