Like many legal and contractual matters, foreclosure has its own language that can easily be difficult for the layperson to understand. Yet it’s often critically important that anyone signing these contracts know what’s included and how it can affect the rights and responsibilities of those who sign it. The power of sale clause is a term that can have powerful impacts on the foreclosure process but doesn’t necessarily sound important on the surface.
What Does the Power of Sale Clause Do for Lenders?
A power of sale clause is often included in mortgage contracts as a safeguard for lenders. Also known as nonjudicial foreclosure, the power of sale allows the lender to foreclose on the building without going through the courts. This means they can sell the home without a judicial process and use the proceeds to pay off the delinquent debts. Strict policies and procedures still need to be followed, depending on state law, including proper notification to the borrower, and waiting periods for the borrower to respond.
Are There Advantages of Power of Sale Clauses for Borrowers?
Even though it appears advantageous primarily to lenders, there are some positive aspects of the power of sale clauses for borrowers. Foremost is that borrowers have the right to insist on a court case. They can sue the lender and take the foreclosure to court. In some ways, that’s a negative in that the borrower has to initiate the court case, but at least the option is still there. Another positive is that in some states, lenders aren’t allowed to seek out a deficiency judgment against the borrower if the lender handles the foreclosure, but the sale doesn’t clear the debt. A deficiency judgment means that the lender can legally sue for the difference in funds if the building sells for less than the balance on the mortgage.
What Are the Disadvantages of Power of Sale Clauses for Borrowers?
Power of sale tends to conclude more quickly than judicial foreclosure so that someone could be evicted from their home faster. While lenders are required to notify borrowers of pending power of sale actions, how much communication varies by state. Some require several notices, but others may only provide notice of sale.
Are Power of Sale Clauses Enforceable in Illinois?
No. Power of sale clauses are not allowed in several states, and Illinois is one of them. Illinois law requires foreclosures to go through the court system. Lenders cannot do their own foreclosures, so the power of sale clauses are not enforceable in Illinois.
Let Us Advise You
If you or someone you know has been threatened with the power of sale or is facing the possibility of foreclosure, call us at 708-575-1500 to work with one of our experienced foreclosure attorneys.