What Is a Power of Sale Foreclosure?

If you take out a loan to buy a home, the lender will probably require you to sign a mortgage or deed of trust. This document secures the loan.

In some states, the deed of trust or mortgage has a power of sale provision. A "power of sale provision" is a clause in the loan contract. In this clause, the borrower pre-authorizes the property's sale through a nonjudicial foreclosure process after a default. The sale proceeds pay off all or part of the loan balance.

What Is a Power of Sale Foreclosure?

A power of sale foreclosure is also called a "nonjudicial" foreclosure. In a power of sale foreclosure, the lender can foreclose without court oversight. (On the other hand, with a judicial foreclosure, the lender forecloses through the state court system.)

How Power of Sale Foreclosures Work

State statutes establish the procedures for power of sale foreclosures. Each state has its own requirements. Generally, after the borrower defaults by failing to make payments, the lender provides limited notice of the foreclosure, sometimes by taking one or more of the following actions:

• mailing
• publishing, or
• posting a notice.

Then, a trustee (a third party that typically handles the nonjudicial process) can sell the property at a foreclosure sale.

The lender must strictly follow the procedures and timeline of notifications, as well as waiting periods, set out in the state statutes when completing a power of sale foreclosure.

States That Allow Power of Sale Foreclosures

The states where power of sale foreclosures are allowed and generally used are Alabama, Alaska, Arizona, Arkansas, California, Colorado, the District of Columbia (sometimes), Georgia, Hawaii (sometimes), Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia, and Wyoming.

Advantages of Power of Sale Foreclosures for Borrowers

For borrowers, nonjudicial foreclosures have several advantages.

No Deficiency Judgment in Some States

In some states, the lender is prohibited from seeking a deficiency judgment if the lender uses a power of sale foreclosure process.

You Can Still Go to Court If You Want

While a power of sale foreclosure process has no court oversight (or very little), you can still get a court to hear your case if you file your own lawsuit.

Disadvantages of Power of Sale Foreclosures for Borrowers

The cons to nonjudicial foreclosure include the following.

Expedient Process

A power of sale is generally a faster process, usually taking just a few months, compared to a judicial foreclosure. So, you'll most likely lose your home sooner than if a judicial foreclosure happens.

No Judicial Review Unless You File Your Own Lawsuit

Again, to get a court to hear your side of the case with a power of sale foreclosure, you'll have to file your own lawsuit to contest the foreclosure.

In Some States, You Won't Get Much Notice About the Foreclosure

Depending on what state law requires, you might get a notice of default followed by a notice of sale, a combined notice of default and sale, just a notice of sale, or notice by publication and posting only.

Judicial Foreclosure Even If Your Loan Contract Has a Power of Sale Clause

Sometimes, even if the deed of trust or mortgage contains a power of sale provision, the lender may choose to pursue foreclosure through the court system.

Lenders often choose the judicial route if the title to the property has issues, the security instrument has a flaw, or to get a deficiency judgment because, in some states, it can't obtain a deficiency judgment unless it conducts a judicial foreclosure.

Getting Help

If you're facing a foreclosure and want to find out whether the process will likely be nonjudicial or judicial, as well as to learn specifics about foreclosure procedures in your state and get advice about ways to avoid a foreclosure, consider talking to a foreclosure attorney.

It's also a good idea to speak to a HUD-approved housing counselor.