We’re finding out the hard way on a deed contract we bought in Alabama about the Power of Sale Clause. The power of sale clause is one of many clauses written into most mortgages that will allow the lender or mortgage owner the power to sell the property in the event of default by the owner to pay the mortgage debt. . It is for all intents and purposes equivalent to a foreclosure, without the need for judicial execution in non-judicial states.
In our case, the power of sale clause was not included in the deed, so we cannot easily “evict” the occupants non-judicially as we hoped. You are making us file for judicial foreclosure, which results in more time and money to evict non-paying occupants. We’re offering them a “Cash for Keys” option to help motivate them to leave quickly.
The clause preauthorizes the sale of the property when the owner defaults, and each State has its own procedures for this. They usually ask for a limited notice of foreclosure, such as mailing, posting the notice on the property, or publishing it in the newspaper. The trustee can then sell the property at a foreclosure sale. The process must follow the schedule and waiting periods established by the State when completing the foreclosure of the Power of Sale.
Today, 30 states allow a Power of Attorney foreclosure, and for borrowers, it has some advantages. The first is that a deficiency in judgment cannot be sought in some states. This means that if they owe $100,000.00 and the house sells for $80,000.00, they still owe $20,000.00.
Lenders typically file a deficiency judgment against the person, which is an unsecured lien that must be resolved before they can finance something in the future, such as a new car or home. In addition, if the borrower files a lawsuit, it must be reviewed judicially or in court.
The downside for the homeowner is that the process is much faster and less expensive for the lender than foreclosure of the property. So they can lose their house faster. Foreclosures in NY or NJ could be 5-7 years and range from $5,000.00 to $10,000.00+.
Also, there is no judicial review unless they file a lawsuit. They cannot argue their case in front of a judge unless they file a lawsuit, which includes paying court and attorney fees. Difficult if they are not even able to repay the loan.
And even with the Power of Sale Clause, some lenders decide to do a judicial foreclosure if there are some title issues, like document flaws, as we discovered, or they want to go ahead with the deficiency judgment since some states won’t allow it. . they have the judgment of deficiency unless they execute judicially.
When shopping for mortgages and deeds in default, always remember to check the documents for the power of sale clause, as we have discovered, it is a very important clause that needs to be there.
