Power of Sale is a phrase used in the mortgage industry, to describe the forced sale of a property when a mortgagor defaults on making their mortgage obligations. Power of sale commences when a lender or financial institution attempts to recover losses on a non-performing mortgage – as a result of a borrower defaulting on mortgage payments – by selling the property. In London power of sale grants the lender or financial institution the right to sell the property when a borrower defaults on the monthly payment.
Once the lender has recovered their losses and is fully paid out, any proceeds or surplus left from the sale of the property is returned to the borrower or the debtor. Transfer of the property is done through the transferring of the deed to whoever purchases the property.
According to the Mortgages Act, there exist two types of Power of Sale. They are;
This is when the power of sale provisions have been included in the mortgage documents. This is the most common type of power of sale provision. Unless otherwise stated in the mortgage agreements, it gives the borrower 35 days to make payments. This window is referred to as the ‘redemption period’.
This is when the power of sale provisions have not been included in the mortgage documents. It is very rare that this occurs but gives the lender powers to carry out the power of sale when a borrower defaults on mortgage payments for three months straight or more. It gives the borrower 45 days to make payments.
The first notice – Notice of Sale – is iusually given 15 days after the home owner is in default on their payment. It is sent out to all parties with vested interest in the property such as mortgage and lien holders. All the relevant details about the mortgage such as: date of the mortgage agreement, all the parties involved, and the amounts owing etc. are contained in this notice.
In a power of sale, the lender reserves the right to sell the property but does not take the title to the property. In the event of a successful sale, the lender will recover their losses after which all the remaining proceeds of the sale are given to the home owner or borrower.
In a foreclosure, the mortgage holder is the one who takes title to the property. In the event of a successful sale, the property owner does not receive any proceeds from the sale.
There are, however, mortgage experts who can help stop power of sale proceedings on your property. It is advisable that you seek services and advice of such experts before your property goes into power of sale. If you are having debt problems and suspect that you may be unable to make mortgage payments on time, these experts will be in a position to advise you on the various options available at your disposal.