Legal Definitions - Power of Sale clause

Power of Sale clause

A Power of Sale clause is a specific provision commonly included in a mortgage or, more frequently, a deed of trust. This clause grants the lender (or a trustee acting on the lender's behalf) the authority to sell a property directly if the borrower fails to meet their loan obligations, such as consistently missing mortgage payments. This process, known as a non-judicial foreclosure, allows the lender to recover the outstanding debt by selling the property without needing to obtain a formal court order, which can often be a quicker and less costly method than a judicial foreclosure.

Examples:

• Example 1: Residential Homeowner Default
  Imagine a homeowner, Alex, purchased their house with a mortgage that included a Power of Sale clause. After experiencing an unexpected medical emergency, Alex fell behind on several mortgage payments. Because of this clause, the lender could initiate foreclosure proceedings by directly arranging for the sale of Alex's home at a public auction, following specific state regulations, without first needing to file a lawsuit and obtain a judge's approval. This allows the lender to recover the outstanding loan balance more efficiently.
• Example 2: Commercial Property Loan Default
  A small business owner, Brenda, secured a loan to buy a retail space for her boutique. The deed of trust for this commercial property contained a Power of Sale clause. When Brenda's business struggled and she defaulted on her loan payments, the bank, through the trustee, was able to begin the process of selling the commercial property to recoup their investment. They did not need to go through the court system to get permission to sell the building, streamlining the recovery process.
• Example 3: Investment Property Foreclosure
  An investor, Carlos, bought a multi-unit rental property using a loan secured by a deed of trust that incorporated a Power of Sale clause. After a period of poor tenant occupancy and rising maintenance costs, Carlos stopped making his loan payments. The lender, relying on the Power of Sale clause, was able to move forward with selling the property at auction to satisfy the debt, bypassing the potentially lengthy and expensive judicial foreclosure process that would otherwise be required in states without such clauses or for different types of mortgages.