Power of Sale
What Is Power of Sale?
Power of sale is a clause in mortgage loans that allows lenders to sell the property if the borrower defaults on the loan. Other names for the power of sale are non-judicial foreclosure and statutory foreclosure.
In the states that allow the power of sale, lenders often can have a faster foreclosure process. However, some borrowers may have a legal right of redemption, enabling them to end a power of sale foreclosure process if they pay what they owe within a set timeframe.
How Does Power of Sale Work?
More than half of states allow power of sales clauses. However, lenders must follow specific guidelines to pursue foreclosure proceedings without judicial review. These guidelines can vary from state to state.
The process begins with the lender issuing written notices of default to the borrowers after multiple months of missed mortgage payments. Federal law mandates that borrowers must be more than 120 days behind in their payments before the foreclosure process can begin.
After 120 days, a lender sends a written notice of default (usually by mail) to the borrower, informing them that the lender is enacting the power of sale clause. After this point, states vary on what happens next. Here are some of the other notices the lender may give the borrower:
- Sale notice: This document lets the borrower know that their home will be sold on a specified date unless the borrower satisfies the terms of the loan.
- Mixed default and sale notice: This document is a combined notice about missing payments and the pending property sale.
- Public notice: A few states require the lender to post or publish a public notice of the foreclosure and sale of the property.
Power of sale or judicial foreclosure?
The entire power of sale process can take only a few months, far less time than judicial foreclosures, which can take many months or even years to conclude. Everything takes place out of court. A third party, known as a trustee, is in charge of conducting the sale of the home, which is often with an auction.
In many cases, homeowners can reclaim their foreclosed property through the right to redemption if they pay off the mortgage balance, back taxes, and other fees. These redemption periods also vary, but in many states, they are six months after the sale of the foreclosed property.
What Are the Benefits of Power of Sale?
The power of sale clause can save time and court costs for lenders. For borrowers, it also can have some advantages.
If the property sells for more than the borrower’s total outstanding debt and any other liens on the property, the borrower may receive some proceeds (called surplus funds) from the sale.
A downside to the power of sale to the borrower is that they have much less time to negotiate for the continued ownership of their home than with a judicial foreclosure.
In order to fight a foreclosure using the power of sale clause, a borrower would have to file a lawsuit that disputes the foreclosure. Although the court case may provide additional time, it also involves paying filing costs, lawyer fees, and other expenses.
Homebuyers seeking a mortgage should learn how the power of sale is treated in their state and in their mortgage contract. The terms of the legal agreement can vary from lender to lender.
Helpful Resources:
What Is Power of Sale?
Power of sale is a clause in mortgage loans that allows lenders to sell the property if the borrower defaults on the loan. Other names for the power of sale are non-judicial foreclosure and statutory foreclosure.
In the states that allow the power of sale, lenders often can have a faster foreclosure process. However, some borrowers may have a legal right of redemption, enabling them to end a power of sale foreclosure process if they pay what they owe within a set timeframe.
How Does Power of Sale Work?
More than half of states allow power of sales clauses. However, lenders must follow specific guidelines to pursue foreclosure proceedings without judicial review. These guidelines can vary from state to state.
The process begins with the lender issuing written notices of default to the borrowers after multiple months of missed mortgage payments. Federal law mandates that borrowers must be more than 120 days behind in their payments before the foreclosure process can begin.
After 120 days, a lender sends a written notice of default (usually by mail) to the borrower, informing them that the lender is enacting the power of sale clause. After this point, states vary on what happens next. Here are some of the other notices the lender may give the borrower:
- Sale notice: This document lets the borrower know that their home will be sold on a specified date unless the borrower satisfies the terms of the loan.
- Mixed default and sale notice: This document is a combined notice about missing payments and the pending property sale.
- Public notice: A few states require the lender to post or publish a public notice of the foreclosure and sale of the property.
Power of sale or judicial foreclosure?
The entire power of sale process can take only a few months, far less time than judicial foreclosures, which can take many months or even years to conclude. Everything takes place out of court. A third party, known as a trustee, is in charge of conducting the sale of the home, which is often with an auction.
In many cases, homeowners can reclaim their foreclosed property through the right to redemption if they pay off the mortgage balance, back taxes, and other fees. These redemption periods also vary, but in many states, they are six months after the sale of the foreclosed property.
What Are the Benefits of Power of Sale?
The power of sale clause can save time and court costs for lenders. For borrowers, it also can have some advantages.
If the property sells for more than the borrower’s total outstanding debt and any other liens on the property, the borrower may receive some proceeds (called surplus funds) from the sale.
A downside to the power of sale to the borrower is that they have much less time to negotiate for the continued ownership of their home than with a judicial foreclosure.
In order to fight a foreclosure using the power of sale clause, a borrower would have to file a lawsuit that disputes the foreclosure. Although the court case may provide additional time, it also involves paying filing costs, lawyer fees, and other expenses.
Homebuyers seeking a mortgage should learn how the power of sale is treated in their state and in their mortgage contract. The terms of the legal agreement can vary from lender to lender.
Helpful Resources: