The process of foreclosure by power of sale will normally involve the sale of a property by the mortgage holder through some means which does not include the supervision of a court. In this way, it contrasts with foreclosure by judicial sale. This type of foreclosing process is currently in use in 29 states. It is usually had recourse to by a mortgage holder because it offers a quicker and more efficient process by which to claim the property.
Who Benefits From Foreclosure by Power of Sale?
As with most other forms of these proceedings, the sale of the property will first benefit the holder of the mortgage. After their share of the proceeds is received, next in line will be all other parties who claim a lien on the property included in the mortgage. Last comes the person who took out the mortgage. If any proceeds are left after the other parties have been paid, they will receive whatever is left from the sale.
The Power of Sale Clause Needs to Be Written into the Actual Mortgage
The power of the mortgage holder to hold a power of sale proceeding needs to be written into the mortgage itself in order for the proceeding to be legally valid. This means that if the mortgage holder should threaten to hold such a sale without the clause being included, the person who took out the mortgage can challenge them in a court of law. It should also be noted that a power of sale proceeding cannot legally take place if the mortgage itself has been written up in the form of an absolute deed.
A Power of Sale Proceeding Can Still Be Subject to Judicial Review
There are some circumstances under a which a power of sale proceeding can still be subject to full judicial review. These include certain types of situations in which a number of issues or defects in the mortgage need to be resolved. There may also be lien holders and people holding leases on the property whose claims will need to be dealt with and resolved before the final sale of the property is allowed to take place.
Mortgage Holders May Be Barred From Seeking A Deficiency Judgment
In many states, the holder of the mortgage will be legally prohibited from seeking a deficiency judgment. This will be especially the case if the holder decides to sell the property through some other means than the local court system. This means that, although the sale may proceed quicker and more efficiently, the holder of the mortgage may walk away with less of a payoff than they had originally planned on receiving.
A Deed of Trust is Required to Conduct a Point of Sale Foreclosure
In most jurisdictions, the holder of the mortgage will need a deed of trust in order to begin a point of sale proceeding. A deed of trust is used to transfer the property from the holder of the mortgage to a special trustee that they appoint. This trustee will be the one who holds the property on behalf of the mortgage holder until the proceedings begin. When they do, it will be the trustee who holds the actual sale of the property. The trustee will generally be a person whom the mortgage holder has selected specifically for this purpose. They are not obligated to determine if the proceeding is justified.
A Special Relationship Between a Mortgage Holder and Trustee is Required
Point of sale procedures have definite rules when it comes to the relationship of a mortgage holder and their trustee. A deed of trust, as well as the fact that a trustee is supervising and conducting the sale, are the two elements that are required if the holder of the mortgage intends to bid on the property. If these two conditions are not fulfilled, the mortgage holder is barred from doing so. If a point of sale proceeding should occur without one or both of these conditions being fulfilled, the person who took out the mortgage may have a legal right to contest the sale.
All Point of Sale Proceedings Must Be Properly Advertised
All interested parties must be duly notified before a point of sale proceeding can take place. This is generally done by placing an ad in the newspaper. Many states will also require that a notice be given to the person who originally took out the mortgage. There has been some controversy involved at this point of the process. Some courts have ruled that the use of much stricter and more effective notifications may be necessary. The issue has, so far, not been definitively settled.