So a borrower defaults under a promissory note and the deed of trust. Normally, the lender in that circumstance will exercise the power of sale clause in the deed of trust and begin the foreclosure process by noticing a trustee’s sale. However, the lender may also choose to call the note due and accelerate the entire amount and proceed with a judicial foreclosure. Most lenders choose to go the trustee’s sale route because it is faster and cheaper than a judicial foreclosure.
What I recently discovered, is that many attorneys do not know about a borrower’s statutory right of reinstatement and how that right applies in the context of both a trustee’s sale and a judicial foreclosure. Under Arizona Revised Statute Section 33-813(A), the trustor under a deed of trust (borrower) may reinstate (or cure the default under the promissory note) by paying the lender "the entire amount then due . . ., other than the portion of the principal as would not then be due had no default occurred . . ." In other words, the borrower only needs to come up with the amount he or she is in default, not the entire amount due under the promissory note. Nonetheless, many lenders’ attorneys seem to believe that if the lender calls the promissory note due and exercises its right to accelerate the promissory note, the borrower must immediately pay the entire amount owed under the promissory note in order to cure the default, not just the defaulted amount.
However, in Chapparral Development v. RMED Intern, 170 Ariz. 309, 823 P.2d 1317 (App. 1991), the Arizona Court of Appeals ruled that under A.R.S. Section 33-813(A), a trustor has an absolute right to reinstatement whether a lender chooses to foreclose by means of trustee’s sale or a judicial foreclosure. The difference being, if a lender chooses to pursue judicial foreclosure, a borrower’s statutory right of reinstatement is cut off once the lender files the judicial foreclosure action and the borrower will have to pay the entire amount owed on the promissory note. On the other hand, in the context of a trustee’s sale, the borrower can reinstate up until 5:00 p.m. the day before the date of the trustee’s sale. But once the trustee’s sale has been held, that right of reinstatement is extinguished.