Missed Mortgage Payments? Here’s What You Need to Know
When a borrower fails to pay their mortgage installments, the lender can choose between several mortgage remedies. These include power of sale, judicial sale and foreclosure. There are several more, but the most commonly used remedy is a power of sale, and we will be dealing with them in this article.
Following a borrower’s default, a lender may choose to sell the mortgaged property to a third party. This allows the lender to recover the remaining balance on the debt. The process is simple and fast. Upon default, the lender provides the borrower with a notice (usually 35 days). Following this notice, the lender can take steps to sell the property and convey the mortgaged property to a third party. The borrower can only stop this process if they provide the entire remaining mortgage balance, essentially buying it out. The ease and expediency of a power of sale is the main reason why it is most common.
One important consideration for a lender exercising the power of sale, is that there is a legal duty to the borrower to pursue the highest possible value for the property. A power of sale is not meant as an instrument to gain profit, only to recover an outstanding mortgage balance. Therefore if the proceeds provide any surplus after the outstanding mortgage balance has been paid, the surplus goes to the borrower. Furthermore, if the property is sold under the market’s fair value, the lender is then liable to the borrower for the loss. For some lenders, this is a reason to avoid exercising the power of sale and opting for other, liability-free mortgage solutions.
This article is not legal advice and the content is for informational purposes only. If you are seeking a solution, contact a mortgage or real estate lawyer in your area and consult with them on a case-specific basis.