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Deed Of Trust vs. Mortgage in New York

By Elizabeth R. Elstien

A homebuyer procures a loan from a lender to purchase a specified property. The lender will then protect their interest in the home with either a deed of trust or a mortgage in case the homebuyer fails to make scheduled loan repayments. Both legal documents allow the lender to place a lien on the home to repossess it and sell it if the homebuyer is in default for non-payment. However, there are differences is how the property is given back to the lender for resale.

With a mortgage, the lender has to go through the court system in order to be able to resell the home when a homebuyer defaults. This is known as judicial foreclosure. A deed of trust, the preferred choice for smaller lenders and certain states, lets the lender skip the court process (non-judicial foreclosure) saving the lender money and time.

Some states allow the lender to use the lien document of their choice. Other states allow either deeds of trust or mortgages, but not both. In New York state, only mortgages may be used to protect the lender. This means that to foreclose on a property in New York is a costly and time-consuming process for the lender, but gives the homeowner more time to live in the home and hopefully make the necessary payments to avoid foreclosure.

However, whether the clause "power of sale" is used in the New York mortgage document is very important. Most mortgages in New York do not have this clause and take seven to nine months to foreclose after the lender issues a notice of pending foreclosure and court appearance with the homeowner getting a chance to plead their case in court and sometimes getting an extension. For the few mortgages that do contain this "power of sale" clause, a non-judicial foreclosure may be used and the court system avoided, making it quicker and easier for the lender to foreclose and sell the property.

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