A foreclosure by power of sale is whereby the mortgage holder sells the mortgaged property without court oversight with the exception of judicial states where the foreclosure process has to go through the state court and be authorised. The power of sale is therefore a clause in a mortgage or in the deed of trust that allows the borrower to pre-authorize the sale of their property so as to clear the remaining debt balance in the event that he/she defaults in the loan repayment. Foreclosure by power of sale is also called the non-judicial foreclosures.
The Process involved in a Power of Sale Foreclosure
Each state has established its own procedures and due processes for the power of sale foreclosures. However, in general, after default on payments by the borrower, limited notice of the foreclosure is provided to the borrower usually through an advertisement in the local newspaper in the geographical jurisdiction where the property is located. The property is then sold at a foreclosure sale by a trustee who strictly follows all procedures regarding the sale and the required timeline of notifications as prescribed by statutes in matters concerning foreclosure by power of sale.
The pros and cons Associated with Foreclosure by Power of Sale
There are various advantages and disadvantages to power of sale foreclosures and they vary depending on the situation an individual is in. Some of the advantages include:
- The process is expedient due to little or no court oversight and intervention.
- The borrower can seek judicial review that the foreclosure will be subject to if they file a lawsuit against the lender and the process involved.
- In some states, the lender cannot seek a deficiency judgement in the event of a foreclosure process hence saving the borrower money. A deficiency occurs when the sale price for the foreclosure is less than the remaining amount on the mortgage contract.
- The foreclosure can result in all parties receiving some of the sale proceeds.
- The terms of sale can be pre-negotiated and clearly stated in the mortgage contract by the borrower and the lender.
The disadvantages of the power of sale foreclosure include:
- The deficiency judgment is unavailable in some states if the parties involved choose to be involved in the non-judicial foreclosure.
- Some states prohibit the power of sale foreclosures and thus hindering those who willingly want to engage in such a mortgage contract while some require the stating of the right to the power of sale foreclosure in the mortgage agreement.
- Unless the borrower files their own lawsuit, there is no judicial review.
The Deeds of Trust and their relation to the Power of Sale Foreclosures.
For a power of sale foreclosure to be executed, the deed of trust is needed in most if not all jurisdictions. A deed of trust is therefore an agreement that allows for transfer of the property from the mortgage owner to a trustee who in turn holds the property for the mortgage owner. During the property sale, the trustee and not the mortgage holder conducts the sale.
Sources:
www.legalmatch.com/law-library/article/foreclosure-by-power-of-sale.html
www.nolo.com/legal-encyclopedia-what-is-power-of-sale-foreclosure.html