When a lender loans money to someone to buy a home, it usually requires that the obligation be secured by a mortgage or deed of trust on the real estate that the borrower is purchasing. In some states, the most common form of loan contract is a deed of trust or a mortgage with a "power of sale" provision. Read on to learn more about power of sale provisions and power of sale foreclosures, which are also called nonjudicial foreclosures.

What is a Power of Sale Provision?

A power of sale provision is a clause in the deed of trust or mortgage in which the borrower pre-authorizes the sale of property by way of a nonjudicial foreclosure to pay off the balance of the loan in the event of a default. With a power of sale foreclosure, the lender can foreclose without court oversight. (In a judicial foreclosure, the lender forecloses through the state court system. To learn more about the difference between judicial and nonjudicial foreclosures, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)

Power of Sale Foreclosure Process

State statutes establish the procedures for power of sale foreclosures. Each state has its own requirements.

Generally speaking, after the borrower defaults (by failing to make payments), the lender provides limited notice of the foreclosure, sometimes by mailing, publishing, and/or posting the notice. Then a trustee—a third party that typically handles the nonjudicial process—is allowed to sell the property at a foreclosure sale. The lender must strictly follow the procedures and timeline of notifications and waiting periods prescribed by statute when completing a power of sale foreclosure.

States With 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 for Borrowers

For borrowers, power of sale foreclosures offer several advantages.

• No deficiency judgment in some states. In some states, the lender is prohibited from seeking a deficiency judgment if a power of sale foreclosure process is used. (Learn more about deficiency judgments in the foreclosure context.)
• A borrower may still seek judicial review. While the power of sale foreclosure process has no court oversight, the foreclosure can be subject to judicial review if the borrowers file their own lawsuit.

Disadvantages for Borrowers

The cons to nonjudicial foreclosure include:

• Expedient process. A power of sale is generally a faster process—usually a few months—for foreclosing on a property, as compared to a judicial foreclosure. This means you will lose the property sooner than if a judicial foreclosure was conducted.
• No judicial review unless you file your own lawsuit. To get a court to hear your side of the case with a power of sale foreclosure, you will have to file your own lawsuit (including paying the filing fees) to contest the foreclosure. (For more information, see our article How to Fight a Foreclosure in Court: Nonjudicial 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 in a couple of states, notice only by publication and posting.

Judicial Foreclosure When a Power of Sale Clause Exists

Sometimes, even if the deed of trust or mortgage contains a power of sale provision, the lender may choose to pursue foreclosure through the courts. Lenders often choose the judicial route if there are title issues, a flaw in the security instrument, or to pursue a deficiency judgment because, in some states, it cannot obtain a deficiency judgment unless a judicial foreclosure is pursued.

Getting Help

If you're facing a potential foreclosure and want to find out whether the process will likely be nonjudicial or judicial in your case, 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. If you can't afford an attorney, consider talking to a HUD-approved housing counselor.

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