Legal Definitions - power-of-sale foreclosure

A power-of-sale foreclosure is a legal process that allows a lender to sell a property to recover an unpaid debt without requiring a court order. This type of foreclosure is possible only when the original loan agreement, such as a mortgage or deed of trust, contains a specific provision known as a "power of sale" clause. This clause grants the lender the authority to initiate a public sale of the property if the borrower fails to make their payments, provided they follow strict notice requirements and procedures mandated by state law. It is often a faster and less expensive alternative to a judicial foreclosure, which necessitates a lawsuit in court.

• Residential Mortgage Default: Sarah purchased a home with a mortgage that included a power-of-sale clause. After losing her job, she fell behind on her mortgage payments for several months. Instead of filing a lawsuit in court, her bank initiated a power-of-sale foreclosure. They sent her the required notices, advertised the property, and eventually sold her home at a public auction to recover the outstanding loan balance.

  This example illustrates a power-of-sale foreclosure because the bank was able to sell Sarah's property without a court's involvement, relying solely on the "power of sale" provision within her mortgage agreement after she defaulted on her payments.

• Commercial Property Loan: A small business, "Bright Ideas Inc.," took out a loan to purchase its office building. The deed of trust securing this commercial loan contained a power-of-sale clause. When Bright Ideas Inc. experienced financial difficulties and stopped making loan payments, the lender chose to pursue a power-of-sale foreclosure. Following state regulations, the lender provided proper notice to Bright Ideas Inc. and proceeded to sell the office building at a trustee's sale to recoup the money owed.

  Here, the power-of-sale foreclosure is demonstrated by the lender's ability to sell the commercial property through a non-judicial process, directly exercising the authority granted by the "power of sale" clause in the deed of trust after the business defaulted.