Alaska deeds of trust -- a primer of frequently asked questions
Q: Is a mortgage or a deed of trust used traditionally in Alaska?
A: Mortgages, contracts for deeds and deeds of trust are all authorized under Alaska law. However, deeds of trust have for the past 25 to 30 years or so, typically been used in residential and commercial real estate financing transactions in Alaska.
One of the principal reasons is that a deed of trust can be foreclosed nonjudicially, without court intervention, with a foreclosure sale occurring at least 90 days following the recording of a notice of default. In the event of a default, mortgages, and in many cases, contracts for deeds must be judicially foreclosed.
Q: How does a deed of trust work?
A: In a deed of trust, title to the property is conveyed by the owner/borrower (the "trustor") in trust to a trustee (typically a title company) for the benefit of the lender (the "beneficiary") with a power of sale in the event of a default by the borrower.
The deed of trust is recorded, and thereby creates a lien upon the relevant real property in favor of the lender or beneficiary. Upon any default, and the giving of statutorily prescribed notice to the borrower and other parties in interest, the trustee can sell the property at a foreclosure sale conducted at a courthouse.
Q: If under a deed of trust, the lender exercises its right under a power of sale, is it still possible to obtain a deficiency judgment for the amount owed in excess of the amount bid, or are there so-called "anti-deficiency statutes" present in the state of Alaska?
A: Alaska has a broad form of anti-deficiency statute that precludes a deficiency judgment following the completion of a nonjudicial foreclosure.
In some states, such as California, case law and statutes allow anti-deficiency or similar provisions to be waived in the language of the deed of trust. There is no Alaska case law of which we are aware addressing this issue, at least in advance of a default.
Q: Is there an election of remedies requirement in the state of Alaska?
A: Generally, if a deed of trust is foreclosed judicially, or if the note secured by the deed of trust is sued upon and a judgment is obtained by the beneficiary, the beneficiary cannot thereafter proceed with a nonjudicial foreclosure.
The statute was enacted during the mid-1980s "oil patch" recession in Alaska to overrule a pair of Alaska Supreme Court decisions that allowed creditors a broad, all-inclusive set of remedies. In addition, in order to preserve the right to waive the security and sue on the note, a creditor must include a specific form of disclosure within the note or as a separate document.
Alaska deeds of trust generally include language to the effect that the exercise of the power of sale in the deed of trust is at the election of the lender/beneficiary, and that the right to judicially foreclose the deed of trust is preserved in the lender/beneficiary’s discretion.
Q: In general, what are the usury limits for promissory notes in the state of Alaska?
A: In general, loans in which the principal amount exceeds $25,000 are not subject to usury limitations. They would, of course, be subject to concepts of unenforceable penalties, overreaching or unconscionablilty. Special exceptions from the general usury limitations apply to certain types of lenders under applicable state or federal law.
Deeds of trust are invaluable instruments in Alaska when one wishes to secure the payment of obligations with a lien upon real property.
Frederick J. Odsen is a member of the law firm Hughes Thorsness Powell Huddleston & Bauman LLC. He can be reached at 907-263-8255.