Power of Sale: What it is, and how to Avoid it

Power of sale. Three words you never want to hear as a homeowner.  Unfortunately, keeping up with your mortgage payment can be a very difficult task.

Unexpected expenses like automotive repairs, sudden injuries, or changes in work circumstances can prevent borrowers from being able to make their mortgage payments on time.

When this happens, mortgagees may resort to one of two debt resolution methods. The first method is via a power-of-sale transaction.  The second option is a foreclosure process.  Both are means for the mortgage lender to recoup their losses.  If all else fails, the next step is eviction.

Thankfully, issuing power of sale requires that lenders adhere to strict regulations. Power of sale is a legal process and its steps must be followed.  This process allows homeowners the necessary time and opportunity to resolve their debts.

We’ll go into more detail as to what power of sale is (and isn’t), as well as what the process entails and how homeowners who have been subjected to the power of sale should respond.

What is the Power of Sale?

While both are a means of reconciling mortgage default, power of sale differs from foreclosure in a few notable ways. The primary difference between the two is that power of sale authorizes the lender to sell the home. Whereas, foreclosure authorizes the lender to take possession of the home.

With power of sale, the lender must sell the property at fair market value for the property. Upon sale, the remaining money from the proceeds is given to the homeowner. Of course, this is after the lender has recouped all of their fees.

Litigation is not required on the part of the lender when power of sale is used. This means that the lender will recover their outstanding debts more quickly than with foreclosure — typically within a few months.

Foreclosure differs from power of sale. Instead of selling the home, the lender obtains the title to the home from the outset. At this point, the lender must pursue litigation against the borrower, before selling it.

This means that it will take longer for a lender to regain their losses by selling the home. Foreclosure cases are often tied up in court for some time.

The drawback of a lengthier recovery time is offset by greater profits on the foreclosed home. However, unlike power of sale, lenders are not required to pass on any of the profits in the sale of the home to the former homeowner.

Power of sale process

Removing a borrower from their home is a very serious matter, and is also a significant inconvenience to the lender. Consequently, lenders try to work with homeowners to resolve issues whenever possible. If this is not possible, then the lender will pursue a power of sale, and the process consists of six basic steps:

1. Default – Once the borrower violates the terms of the mortgage, the power of sale process begins. The most common violation occurs when a borrower misses at least one payment. But, there are other forms of mortgage breaches. These include failure to insure the home, failure to pay taxes, or the performance of illegal activity at the property.  In this case, the lender is required to notify the borrower in writing. The notice will explain the reason for the default on the mortgage.
2. Notice of Sale – After waiting 15 days from the date of the default, the lender must send a Notice of Sale to the borrower notifying them that their home may soon be sold. This notice goes out to other parties with a vested interest in the property such as subsequent mortgagees, execution creditors, and those who have placed any liens against the property. Once the Notice of Sale has been issued, the lender must wait 35-40 days before taking further action.
3. Redemption Period – The borrower has an opportunity to bring their mortgage back into good standing during the waiting period. If the borrower is unable to rectify their debts, a Statement of Claim may be issued for the eviction of the homeowner.
4. Possession – If the borrower is unable to pay and the Statement of Claim has been issued, the next step is to request a court motion for the issuance of a Writ of Possession — assuming the borrower does not issue a Statement of Defense. The Writ of Possession enables the local sheriff to deliver a timetable to the homeowner for their eviction.
5. Sale of the Property – Upon eviction, the lender may proceed with selling the home. They will typically employ a real estate agent to do this. First, they must obtain at least two appraisals to ensure it is sold at fair market value.
6. Proceed Distribution – Lenders recover their investment through the sale of your home. Proceeds of the home are distributed in this order:
   • Expenses incurred by the lender in the sale of the home, such as legal fees, real estate agent fees, and other related expenses.
   • The interest owing to the lender, both principal, and interest.
   • Any other parties with a claim to the property (subsequent mortgagees, lien claimants, creditors, etc.).
   • The borrower was unable to pay.

If the amount from the sale of the home is still insufficient to cover all expenses, the lender may file a Writ of Execution. This allows the lender to recoup any losses still outstanding from the sale of the home.

How to Stop Power of Sale

The best way for a borrower to stop power of sale is to bring their mortgage out of default. Paying off the borrower’s arrears plus any legal fees will stop a power of sale (provided the mortgage can be redeemed). Alternatively, you can also pay the mortgage off in full, along with the legal fees.

Borrowers who find themselves in default on their mortgage likely have insufficient means for payment. So paying off such a high sum may be quite difficult, but it is possible. Strategies that some homeowners have used to bring their mortgage out of default include the following:

• Consulting an attorney for legal counsel.
• Selling the home yourself.
• Consult a mortgage broker to explore your options.

Truth be told, there is little a lawyer can do to stop a power of sale. Moreover, most people don’t want to sell their homes so consulting a mortgage broker is often the best option.

A mortgage broker who specializes in mortgage defaults, bad credit & income challenges is a surefire way to get the representation you will need.  They will know the ins and outs of mortgage arrears and have lenders that will work with clients in distress.

If your mortgage has reached the point of no return, you still have options. You need to get a professional mortgage broker on your side as quickly as possible to avoid unnecessary legal costs. Moreover, you can reduce the risk of losing your home.

Let Us Help

Stopping power of sale is a very overwhelming process. And, one that requires knowledge of all the legal procedures involved in doing so. Our team of mortgage brokers possesses the experience and know-how it takes to help you navigate this troubling time. We can help you form a strategy to prevent the power.  Call us toll-free at 1-855-668-3074 to discuss your options or apply online and have approval in as little as 24 hours.