The Power of the Power of Sale Clause

We are finding out the hard way in a Contract for Deed we purchased in Alabama about the Power of the Power of Sale Clause. The Power of Sale clause is one of many clauses written into most mortgages which will allow the lender or owner of the mortgage the power to sell the property in the event of a default by the homeowner, in order to pay off the mortgage debt. It is for all purposes the equivalent of a foreclosure, without having to foreclose judicially in non-judicial States.

In our case, the Power of Sale clause was not included in the deed, so we are not able to easily “evict” the occupants non-judically as we expected. It is causing us to file for a judicial foreclosure, resulting in more time and money to remove the non-paying occupants. We are offering them a “Cash for Keys” option to help them motivate them to leave quickly.

The clause pre-authorizes the sale of the property when the homeowner defaults, and each State has its own procedures for this. They typically call for a limited notice of foreclosure such as mailing, posting the notice on the property, or publishing it in the newspaper. Then the trustee can sell the property at a foreclosure sale. The process must follow the timeline and waiting periods set by the State when completing the Power of Sale foreclosure.

As of today, 30 states allow for a foreclosure by the Power of Sale, and for the borrowers, it has some advantages. The first is you can not seek a deficiency judgment in some states. This means that if they owe $100,000.00, and the house sells for $80,000.00, there is still $20,000.00 owed.

Lenders typically file a deficiency judgment against the person, which is a unsecured lien that needs to be taken care of before they can finance anything in the future like a car or new home. Also, if the borrower files a lawsuit, it will need to be reviewed judicially, or in court.

The disadvantages for the homeowner is the process is much faster, and less costly to the lender than foreclosing on the property. So they can lose their house quicker. Foreclosures in NY or NJ could be 5-7 years and reach $5,000.00 to $10,000.00+.

Also, there is no judicial review unless they file a lawsuit. They can not plead their case to a judge unless they file a lawsuit, which includes paying the court and attorney fees. Difficult if they are not even able to pay the loan.

And even with the Power of Sale Clause, some lenders decide to pursue a judicial foreclosure if there are some title issues such as flaws in the document, as we found out, or if they want to pursue the deficiency judgment since some states will not let them have the deficiency judgment unless they judicially foreclose.

When buying defaulted mortgages and deeds, always remember to review the documents for the Power of Sale clause, as we have found out, it’s a very important clause that should be in there.

Distressed Properties Sale: Buying Tips

If you are looking for investments in the real estate market that will double your money, consider buying at distressed properties sale. So, why is a property that has been foreclosed because its owner failed to pay for its monthly mortgages a good investment? It is because a foreclosed property is sold cheaply. For a small amount you can buy your own house, which you can either live in, rent to other people or fix and resell.

Where to Look for Distressed Properties:

Many homeowners who have fallen into bad times and found themselves unable to continue to pay for the monthly mortgage of their properties are willing to sell them instead of waiting for lenders to repossess them. And because they are in a hurry to dispose their properties to avoid foreclosure, they would sell their homes way below the current market value to attract buyers.

If you are interested in buying at distressed properties sale, better arrange your finances first before you approach the owner. There are several advantages of organizing your finances before making an offer. For one, you will know how far you can go when negotiating for the price of the property. Another advantage is, it will give you a leverage during negotiations as the owner would be more inclined to sell to you the property if he sees that you have the ready money.

Some Factors to Consider Before Closing a Deal:

Just because you have found a cheap foreclosure property to buy, it does not mean that you will grab it immediately without taking some steps to make sure that you are getting a good deal. A distressed homeowner who is desperate to sell his house before it goes into foreclosure would opt to withhold any information he deems would turn the buyer away. He knows that information, such as hidden liens, unpaid taxes and major structural damage, can affect his chances of selling his property.

Be aware of these pitfalls so that you will not be left with a property that is more of a headache than a good investment. Buying at distressed properties sale is a good deal only to people who practice due diligence.