Foreclosure is a difficult reality for many homeowners in California who are facing financial challenges. This is a legal proceeding that can result in a person losing their home if they do not make or fall behind on mortgage payments. There are two foreclosure processes under California law: judicial foreclosure and foreclosure by power of sale.

This blog explores foreclosure by power of sale in detail, including how it works and the protections available. You want to consult an experienced lawyer to understand any complexities. An attorney can also help you make informed decisions if you are facing foreclosure. 

What Is Foreclosure by Power of Sale?

Foreclosure refers to a legal process that occurs when a debtor falls behind on their home loan (mortgage) payments. Foreclosure by power of sale, also called a non-judicial foreclosure, is a form of foreclosure that grants creditors the legal power to sell a debtor’s home without court oversight after the debtor defaults on a mortgage payment.

Generally, non-judicial foreclosure is a more expedient way to foreclose on a home than judicial foreclosure. If your deed of trust or mortgage includes a power of sale clause, your creditor may complete the whole process of foreclosure in only a few months, much faster than the judicial foreclosure process.

Most states, thirty to be precise, allow a non-judicial foreclosure. California, Alaska, Arizona, Alabama, and Colorado are among the states that have laws allowing foreclosure by power of sale. Other states are:

  • Arkansas,
  • Georgia,
  • District of Columbia,
  • Hawaii,
  • Maryland,
  • Idaho,
  • Michigan,
  • Massachusetts,
  • Mississippi,
  • Minnesota,
  • Montana,
  • Missouri,
  • Nevada,
  • Nebraska,
  • Oregon,
  • New Hampshire,
  • North Carolina,
  • Rhode Island,
  • Tennessee,
  • South Dakota,
  • Washington,
  • Utah,
  • Texas,
  • Wyoming,
  • West Virginia.

The rest of the states do not have foreclosure by power of sale. Proceeds obtained from a non-judicial sale process go to the lender first, then to the other holders of the property lien, and lastly to the borrower. Non-judicial foreclosure achieves the same results as judicial foreclosure. However, some difficulties are also linked to the non-judicial foreclosure process.

The Foreclosure By Power of Sale Process

State laws establish procedures for foreclosures by power of sale. Every state has established its own requirements. Usually, in California, before the process to foreclose begins, the creditor sends several letters asking you to pay. If they resort to starting foreclosure, they will be required to follow various steps and timelines, as follows:

The Creditor Contacts You Inquiring Whether You Can Prevent Foreclosure

The creditor must reach out to you and anybody else included on the home loan to assess your financial situation and scrutinize ways to retain your home. The lender must also inform you of your right to request a second meeting to discuss how to prevent foreclosure.

Should you request a meeting, the lender must arrange it within fourteen days. The meeting is your opportunity to devise a plan for preventing a foreclosure. You could allow a HUD (Department of Housing & Urban Development)-approved housing counselor, your lawyer, or any other advisor to speak to the creditor on your behalf. The lender cannot force you to agree to any plan they and your representative devise during that meeting.

Recording of a Notice of Default

If you and your creditor have not come up with a plan to avoid a foreclosure, the creditor can record a Notice of Default within 30 days after reaching out to you. They must record this notice in the specific county in which you have the home facing foreclosure. Recording this notice marks the beginning of the public and formal foreclosure procedure.

The lender will send you a copy of the notice through certified mail. They must send the notice within ten business days from the date it was recorded. You have ninety days after the lender records the notice to cure the default. Curing the default means fixing, often by repaying what you owe. You can utilize these ninety days to negotiate with the lender for a repayment plan or a loan modification.

Be wary of foreclosure rescue-related scams. This is where fraudulent companies search publicly available records to offer assistance to debtors who have defaulted on payments. The fraudulent companies may take money from you, but they do not do anything to assist. A United States HUD-approved housing counselor can help you free of charge.

Recording of a Notice of Sale (NOS)

Starting 90 days after the lender records a Notice of Default, if you have not paid your debt, the creditor records an NOS. This notice provides that your trustee will auction your home in twenty-one days. The lender must:

  • Send the notice to you via certified mail
  • Post the notice on your home and in a public area, often at your local courthouse.
  • Publish the notice every week for three consecutive weeks in a newspaper of general circulation in the county in which the home facing foreclosure is located before the date of sale

The Notice of Sale must comprise the following:

  • The location, date, and time of the sale
  • The address of the home
  • The trustee's phone number, address, and name
  • A statement mentioning the home will be sold during an auction

Sale of the Property

The home can then be sold 21 days from when the lender records the NOS. At this auction, the law requires the winning bidder to pay the total bid amount immediately, either by a cashier's check or in cash. The creditor usually bids on the foreclosure costs plus the outstanding mortgage balance. If nobody else bids, the home is transferred to the creditor. The winning bidder receives a trustee's deed after the completion of the sale.

You might still halt the sale at this point. You have no more than five days before your home is auctioned to halt the sale. You can take one of these three steps to prevent the process:

  • Reinstate the loan by repaying all of the past-due debt plus fees
  • You and the mortgage lender can reach an agreement (such as a loan modification)
  • File a court case to halt the foreclosure process

If you or any other institution, such as a bank, is interested in your property and can repay the entire mortgage plus any necessary fees (known as loan redemption), you have until the date of the auction to stop the sale.

What Is Next After the Non-Judicial Foreclosure Process?

After the public auction, whoever purchases your home cannot just change your locks. They must issue you a written three-day notice to move out. Should you fail to vacate within the three days, the new owner must follow the official eviction process by going to court. The eviction process might take several days.

If your Homeowners Association (HOA) foreclosed on your home, you have a lot of time to repossess it. You have ninety days from the sale date to repay any amount you owe to reown the home. If the property is sold for a higher amount than you owe on it, you have the right to acquire the surplus money. To obtain the surplus money, give the trustee (the agency that handled the property sale) your new address once you move. The trustee can inform you of any surplus funds, and you can ask for them.

If the company is unsure who should receive the surplus cash, it must deposit the cash with the superior court in the local area and provide notice of its location. Claiming your money from the Superior Court is straightforward. Nonprofits such as HERA (Housing Economic Rights Advocates) can describe the process to you free of charge.

A Lender May Opt for Judicial Foreclosure Even If There Is a Power of Sale Clause

Even when the mortgage or deed of trust has a power of sale clause, the creditor may sometimes opt to pursue judicial foreclosure. That is, foreclosure with the court’s involvement. Often, lenders select the court system option if:

  • They want to obtain a deficiency judgment since, in certain states, a lender cannot obtain a deficiency judgment except if they pursue a judicial foreclosure, or
  • The property title has problems, or
  • The security instrument has an issue

The Benefits of a Non-Judicial Foreclosure to a Borrower

If you are the borrower, a foreclosure by power sale has several benefits:

  • If you wish to, you can still challenge the foreclosure process in court. Whereas a non-judicial foreclosure process does not have court oversight, you may still have a court resolve your case should you bring a lawsuit challenging the foreclosure.
  • You are protected against a deficiency judgment. In some states, the creditor cannot seek a deficiency judgment if the borrower uses the non-judicial foreclosure process.
  • A non-judicial foreclosure cannot occur if the home loan is in the form of an absolute deed.
  • The lender must strictly comply with state statutes and issue an appropriate preforeclosure waiting period and a legitimate notice of sale and notice of default to you before they start the foreclosure process.

Disadvantages of a Non-Judicial Foreclosure

A non-judicial foreclosure, too, has its cons. They are the following:

  • The process is expedient. Generally, a non-judicial foreclosure process is faster than the judicial one, often lasting only a few months. So, you will likely lose your property sooner compared to if you had used a judicial process.
  • There is no court review unless you bring your lawsuit. It is worth repeating that to have a court hear your case in a non-judicial foreclosure process, you will need to bring your suit to challenge the process.
  • In certain states, you will not be notified much about the non-judicial foreclosure. Based on the requirements of the laws in your state, you may receive a notice of default and then a notice of sale, only a notice of sale, a notice by posting and publication, or a combined notice of sale and default.

Power of Sale Foreclosure and Deed of Trust

In many states, a deed of trust must be in place to proceed with a non-judicial foreclosure. This document legally transfers the ownership of the asset from the lender to the mortgage trustee. The trustee holds the legal title to the home on the lender’s behalf. Should a foreclosure happen, the trustee conducts the foreclosure auction or sale of the home, not the lender. The lender generally directs the mortgage trustee to start the foreclosure process. The trustee does not have an obligation to question whether or not the foreclosure process is warranted.

A foreclosure supervised by a trustee and a deed of trust allows the lender to also bid on the foreclosed home at the auction, as long as the lender and trustee do not associate closely. Otherwise, a lender is not allowed to bid for property if the foreclosure process is non-judicial.

It is worth noting that if the mortgage document has a right of redemption clause, you are entitled to reclaim your property before it is sold at a foreclosure sale by repaying the mortgage.

Foreclosure By Power of Sale vs. Judicial Foreclosure

Should you obtain a home loan, your lender will likely need you to sign a deed of trust or mortgage. The document secures your loan. In certain states, the mortgage or deed of trust contains a power of sale clause, which is a provision in the home loan contract. The provision states that you, as the borrower, pre-authorized the sale of the property through a non-judicial foreclosure process should you default on loan payment.

The proceeds from the sale will then pay off part of or all of the home loan balance. In a foreclosure by power of sale, the creditor can proceed to foreclose without going through the court system. On the contrary, in a judicial foreclosure, the creditor can only foreclose through the court system.

Find an Experienced Asset Forfeiture Lawyer Near Me

Foreclosure is an intricate, intimidating, and frustrating process that you should never have to face alone. If you have been subject to this process, whether judicial or non-judicial, you want to consult a foreclosure lawyer who can help you understand your rights. At Asset Forfeiture Attorney, we safeguard homeowners in California and nationwide with tailored legal solutions. Whether you wish to halt a foreclosure process or assess its validity, our skilled lawyers are here to assist. Call us at 888-571-5590 to protect your financial future and constitutional rights.