Foreclosure by Power of Sale: Brief & Issues

Foreclosure has transformed from a mere legal weapon into million dollar business. Many properties have gone prey to foreclosure while investors continue to make millions of money out of the properties. Though this has been a good mode of business, it is sad to notice that more and more people are losing their dear homes.

Any person is free to get a loan at the stake of his/her own property. The amount of loan will directly depend on the current value of asset in stake. The borrower is required to sign in series of legal documents/contract.

Once the contract is secured, loan capital is issued. This empowers loner by the right to foreclosure the property if any conditions of contract are breached. Foreclosure can be done either ways (both judicially or non-judicially/power of sale).

Judicial foreclosure

Once the contract is breached, the bank moves to court. Hence the foreclosure is supervised by court lawfully on the presence of both lender and borrower.

Non judicial foreclosure

Non-judicial foreclosure is done by power of sale method. In such cases the bank has no need to move to court. Most lenders prefer power of sale foreclosure method since it ensures a cost effective and speedy process. The property first goes to the lender and after the sale; if anything is left over it is returned to the borrower.

Foreclosure – the advantages and disadvantages

If there are defects in the contract titles or any problem between lender and borrower, then power of sale can be resolved by the court alone.

• - Most legal authorities have banned the deficiency judgments. Hence the lender cannot plead borrower for deficiency judgments.
• - Power of sale must be previously specified in the contract, for it to happen.
• - If the contract is in the form of absolute deed, then it obviously prevents power of sale.

Trust deed

Most of the legal authorities ban power of sale without trust deed. A third party or trustee holds the trust deed. Trustee’s duty is to hold the borrower’s property and foreclose the property at the lenders order without any further questions.

Trustee will assume the control on foreclosure proceedings; this will allow the lender to bid in the auction only if both parties are not related. If they are related then lender is banned from bidding.

Constitutional issues

Foreclosure by Power of sale method requires the lender to notice the sale as an ad in local newspaper where the property is located. Though this is a controversial, it is done at the interest of both parties.

The requirement to post a notice of sale has been made mandatory in the fourteenth amendment of US constitution. This has been through many controversies lately, but it stays to be an unanswered question. Up to now it has been clear that the requirement to post a notice of sale is compulsory according to the law and is no required for the power of sale method.

Original: Foreclosure by Power of Sale: Brief & Issues