Foreclosure is actually a good money making business in the world of real estate. Investors are making millions off foreclosure properties. Unfortunately they are thriving off individuals who are losing their homes. Below is a brief guide on foreclosure by power of sale 101.

Generally, a person can loan some amount against his property to a bank or other lending institution. The higher the market value of the property, the higher the loan amount will be. As soon as the contract is sealed, the mortgage loan is issued. This gives the lender the right to foreclose on the property if the money is not paid according to the loan terms.

Foreclosures can be judicial or by a trustee sale invoked upon a power of sale clause in the loan's deed of trust.

What is a Judicial Foreclosure?

The proceedings of judicial foreclosure are supervised by the court within the presence of all involved parties and lawyers. This ensures that the judiciary system and all issues are dealt with properly and according to the law.

What is Foreclosure by Power of Sale?

A lender does not need the supervision of the courts to initiate a foreclosure by power of sale. Lenders often prefer power of sale foreclosure proceedings because they tend to be faster and less expensive. The proceeds from the sale of the property will first go to the mortgage holder (lender or bank), then if there is anything left over the lien holders and borrower will receive it.

Today, there are 29 states that practice foreclosure by power of sale. You might find your state in the list below.

Advantages and Disadvantages of Power of Sale Foreclosure

• If there are title problems with the property such as actual deed defects or liens and lessees, a power of sale foreclosure can only be resolved judicially.
• Deficiency judgments are prohibited in most jurisdictions. This means that the mortgage holder cannot sue the borrower for a deficiency judgment.
• Foreclosure by power of sale must already be specified in the mortgage contract in order for it to take place.
• A mortgage in the form of an absolute deed prevents foreclosure by power of sale.

Foreclosure by Power of Sale is Mandated by:

Deed of Trust

The majority of jurisdictions prohibit a foreclosure by the power of sale without a deed of trust present. This entity is the third party or known as the trustee. The trustee is entrusted by the lender to hold the mortgaged property and mandated by the lender to act on the foreclosure without any questions.

The trustee will take charge of the foreclosure proceedings, and the deed of trust will allow the mortgage holder to bid on the foreclosed property during the auction, provided that both parties are not closely associated. If they are, the mortgage holder/lender is forbidden to bid.

Power of Sale Constitutional Issues

Although this procedure has been controversial, for the best interest of all parties involved the lender  is still required to post a Notice of Sale advertisement in the local newspaper within the jurisdiction that the property is located.

The Fourteenth Amendment of the U.S. Constitution mandates the notice of sale and hearing requirement. However this issue has been met with much controversy and there doesn't’t seem to be a specific answer yet. So far it seems that a public notice of sale is required for judicial foreclosures, but not for non-judicial foreclosures.

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