Definition: Power of Sale
The Power of Sale is a clause often included in mortgages or deeds of trust that gives the lender or trustee the authority to sell the property when the borrower defaults on the loan. This sale, typically conducted via an auction, does not require court intervention, enabling lenders to bypass the judicial foreclosure process. Instead, the sale process is generally overseen by the lender or appointed trustee, following state-specific regulations.
Examples
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Bank Foreclosure Example:
- The ACP Bank included a power of sale clause in John Doe’s mortgage agreement. Upon John’s default on his mortgage payments, the bank exercised this clause by selling the property at auction. The property sold for $200,000. Since John’s remaining debt was $150,000 and the expenses of the sale totaled $10,000, the remaining $40,000 was returned to John.
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Savings and Loan Association Example:
- A savings and loan association exercises the power of sale clause in the mortgage by selling a defaulted property at public auction for $100,000. With the debt at $60,000 and expenses of sale at $5,000, the $35,000 surplus belongs to the borrower.
Frequently Asked Questions (FAQs)
What is the difference between power of sale and judicial foreclosure?
Power of sale allows the lender to sell the property without court supervision, speeding up the foreclosure process. Judicial foreclosure requires the lender to get a court order to authorize the sale of the property.
What happens to the surplus money from a power of sale auction?
After satisfying the debt and covering the expenses of the sale, any surplus generated from the auction sale is returned to the borrower.
Are there any states where power of sale is not allowed?
Yes, some states do not permit non-judicial foreclosures and require foreclosures to go through the judicial process. It is crucial to check state laws to understand the applicable foreclosure process.
Can a borrower challenge a power of sale foreclosure?
Yes, borrowers can legally challenge the foreclosure if they believe the process was not followed correctly or if there are legitimate disputes about the debt’s validity.
Does the borrower receive any notice of the foreclosure sale?
Yes, typically, lenders are required to provide a notice of default and a notice of sale to the borrower, which outlines the intention to sell the property and the sale’s details.
Related Terms
- Non-Judicial Foreclosure: A foreclosure process that enables the lender to sell the property without court oversight, often involving a power of sale clause.
- Deed of Trust: A document that conveys property title to a trustee to secure a loan, which may include a power of sale clause.
- Mortgage: A legal agreement by which a property is secured against a loan, potentially containing a power of sale clause.
- Default: The failure to fulfill the legal obligations of a loan agreement, triggering possible foreclosure actions.
- Equity of Redemption: The borrower’s right to redeem (recover) the property by paying off the complete debt before the foreclosure sale is completed.
Online Resources
- Real Estate Foreclosure Process
- Understanding Power of Sale Foreclosures
- State Specific Foreclosure Laws
- Consumer Financial Protection Bureau: Foreclosure
References
- Garner, B.A. (2019). “Black’s Law Dictionary, 11th Edition”. Thomson Reuters.
- Sirota, T. (2012). “Mortgage Foreclosure: A Guide to Successful Auctions”.
Suggested Books for Further Studies
- “Foreclosure Investing For Dummies” by Ralph R. Roberts and Kirk J. Hornsby
- “Understanding Foreclosure: A Cooperation Manual Including Forms” by Charles F. Mueller
- “The Foreclosure Survival Guide” by Stephen Elias and Patricia Scott
