Power of Sale vs. Foreclosure - What do they mean?

The terms "Power of Sale" and "Foreclosure" have become common in today's real estate market as more and more investors are looking to bag the best deal. While the real estate market is very strong the distress sales are very evident. Most people use the terms interchangeably and often fall prey to confusion both these  terms "Power of Sale" and "Foreclosure"  mean different things not every buyer is aware of the current reference.

What does “Power of Sale” mean?

The term “Power of Sale” means that a mortgage holder (Mortgagee) has obtained the right to sell a property, usually due to non-payment of the mortgage. This doesn’t mean that the Mortgagee owns the property only that they have the right to sell it or they have obtained Power of Sale.

  • Ownership: The ownership of the property does not change hands till the subject property is sold.
  • Use of a relator: A relator may be used depending upon the jurisdiction.
  • Proceedings goes to the owner: Extra money is given back the homeowner, in case of a shortfall the owner is responsible.
  • No Fire Sale: The sale is normally done fast but no fire sale. The offers from the buyers should be carefully examined. The homeowner may request an accounting.
  • Default Insurance Claim: The lender may not be able to get the full money back. If the property is insured against default then the lender can make a claim and the insurer will pay the lender and sue the homeowner for that amount.

Is Power of Sale the same as Foreclosure?

Foreclosure and Power of Sale are not legally the same however to the average consumer looking at buying a property they mean basically the same thing. The mortgage holder has decided to sell the property for non-payment or some other breach of the agreement. Foreclosure is a term that is often heard on those late night infomercials, many of which originate from the United States where their rules and terminology are a bit different.Foreclosure is a different legal process whereby the mortgage holder actually takes over the property and any resulting equity.

  • Ownership: The lender becomes the owner
  • Price is not important: Lender pay less attention to the price.
  • No negotiations required: The lender does not need to negotiate with prospective buyer.
  • Profit or loss all to lenders: Any extra money belongs to the lender, so as any loss.
  • Rights: The mortgagor has the right to have the property sold by judicial sale.

Right of owner is limited: The owner may request for an accounting before the final order for foreclosure

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Sukhwinder Sukh Bhaura

Sukhwinder Sukh Bhaura

Real Estate Broker
CENTURY 21 President Realty Inc., Brokerage*
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