A power of sale is a provision or clause that is usually included in the text of a mortgage agreement. The purpose of the clause is to affirm the right of the lender to take seize control of the property involved and sell it to a third party, if the debtor fails to make the mortgage payments in accordance with the terms outlined in the agreement. It is not unusual for the provision to also include some details on what must transpire before the lender can begin foreclosure proceedings. The exact verbiage used in the power of sale provision will vary, based on regulations that apply in the jurisdiction where the mortgage is written.
The inclusion of this type of clause in a mortgage contract is designed to protect the rights of the lender in the event that the debtor should fail to make payments in a manner that is in compliance with the terms found in the contract. By having a power of sale, the lender has legal grounds for taking over control of the property and beginning the proceedings necessary to foreclose on the property. Once the foreclosure is complete, the lender is then free to sell the property to a new owner. In some jurisdictions, this is managed at a public auction that is overseen by a local government department or agency. At other locations around the world, the lender may arrange for a private auction, or contract with a real estate firm to publicize and sell the property on behalf of the lender.
To an extent, a power of sale also protects the rights of the debtor. This is because the text of the provision usually makes it clear what options the lender has in terms of taking action if payments are not made in a timely manner. By understanding what the lender is empowered to do if payments are habitually late or are not remitted at all, the debtor knows what should be done if circumstances arise that negatively impact the ability of the debtor to pay according to the contract terms.
While a power of sale does grant the lender the ability to foreclose and sell the property in the event of a default, many lenders prefer to work with the debtor to resolve the situation and bring the mortgage up to date once again. This is because the cost of foreclosure and the obtaining of a deficiency judgment is prohibitive in many jurisdictions around the world. In addition, the resources that the lender must devote to the preparation of paperwork before any foreclosure proceedings begin may also be somewhat prohibitive. For this reason, lenders may choose to delay invoking the power of sale until several attempts to work with the debtor have been attempted and ultimately failed.
