Legal Definitions - power of sale

The power of sale is a specific legal right granted by a property owner (often a borrower) to a lender or a designated trustee. This right allows the lender or trustee to sell the property directly, without needing to obtain a court order, if the borrower fails to meet their loan obligations (defaults). This method of foreclosure, known as non-judicial foreclosure, is typically faster and less expensive than a judicial foreclosure, which requires court involvement.

Here are some examples to illustrate the power of sale:

• Residential Mortgage Default: Imagine a homeowner, Sarah, who purchased her house with a mortgage. Her mortgage agreement includes a clause granting the bank a power of sale. After several years, Sarah faces unexpected financial hardship and can no longer make her monthly mortgage payments. Because the mortgage contains a power of sale, the bank can initiate a non-judicial foreclosure process. This means the bank can proceed to sell Sarah's home at a public auction to recover the outstanding loan amount, without first having to sue Sarah in court to get permission.

• Commercial Property Loan: A small business owner, David, takes out a loan to expand his operations, using his commercial office building as collateral. The loan agreement, often structured as a deed of trust in some states, includes a power of sale provision. If David's business struggles and he defaults on the loan, the trustee named in the deed of trust can exercise the power of sale. This allows the trustee to sell the commercial property, following specific legal procedures, to repay the lender, again without requiring a court to oversee the sale.

• Home Equity Line of Credit (HELOC): Consider Mark, who obtained a Home Equity Line of Credit (HELOC) using his primary residence as security. The HELOC agreement, like many mortgage documents, contains a power of sale clause. Mark draws a significant amount from his HELOC but then fails to make the required payments. The lender can then invoke the power of sale to initiate a non-judicial foreclosure on Mark's home, selling it to recover the unpaid balance on the HELOC, thereby bypassing the more time-consuming process of a court-supervised foreclosure.