Matrix Mortgage POS vs Foreclosure
During difficult times, finances may get tight and force you to make decisions you really don’t want to make. For those tough times, when it comes to houses, you may be faced with the possibility of being forced to sell your home. There are two ways this sale can occur. One way to sell is Power of Sale, the other is Foreclosure. Although neither way sounds desirable, both are sometimes a necessity, and depending on which way you chose, your financial outcome can differ. Let’s take a closure look at each method to understand what they do, and the outcomes of each.
Power of Sale
This is the most common method of forced home sales, usually when a homeowner fails (defaults) to pay the mortgage with the bank or lender. It is a clause in a mortgage, which authorizes the lender of the mortgage to sell the property. In this situation, the lender of the mortgage is given the right to legally evict the residents of the property if required to begin to cover costs.
A power of sale is the preferred method over foreclosure because it is less time consuming, it has a faster process, less court time, and less costs. With power of sale, only 15 days need to pass before the lender can step in and take action, and is often taken care of within three months. Usually, lenders don’t make extra profit upon finishing a power of sale. If the house has any equity, the homeowners will try to refinance the mortgage to avoid being forced to sell.
Power of sale lenders are required to fairly sell a house at market value. If there are any extra proceeds left from the paying the debt, they should be given to the homeowner. If there is a discount because of a quick sale, the lender can be sued by the homeowner for loss in equity that should have been received. If, however, the sale proceeds fall short of covering the owed balance, including fees and other costs, the lenders can sue the borrower.
With a power of sale, there are four points to remember:
- A Notice of Sale must be issued by the lender of the mortgage.
- You have 30 to 40 days to pay any mortgage costs arrears.
- A court must issue a Judgement
- The lender must get a Writ of Possession, the legal right to evict (with the assistance of a sheriff) the occupants and commence sale of house.
In this type of method of sale, the lender attains the property’s title or ownership. It is a legal action the mortgage lender can take if the property or homeowner defaults on mortgage payments. What this means, is the lender will have legal ownership of the house or property. The lender can sell or rent the house, or do whatever the lender wishes. The mortgage lender can take back the property.
Compared to a power of sale process, the foreclosure process is long. It can sometimes take more than a year to complete. Several months of missed payments can occur before anything can begin. Since the lender owns the house or property, the lender doesn’t have to sell it at the highest price, and all proceeds or profits above the debt can be kept. Unlike a power of sale, the lender can’t sue for a shortfall after the sale.
Although the process for power of sale and foreclosures are different, the paperwork and legal documents are the same.
- Notice of sale
- For foreclosure: You have 30 days to pay, an extension may be granted.
- Statement of Claim: this is where you would see if your situation is calling for a power of sale or a foreclosure.
- Writ of Possession
To summarize the similarities and differences of power of sale and foreclosure sales:
- Power of sale: the right to sell the house or property belongs to the mortgage lender.
- Foreclosure: ownership of the house or property belongs to the lender.
- Power of sale: after 15 days of missed payments, process of a power of sale can begin.
- Foreclosure: between three to six months of missed payments can occur before foreclosure procedures begin.
- Power of sale does not need a court to be involved in Notice of sale.
- Foreclosure has suit filed in court, then court issues a “demand for payment.”
- Power of sale has a “redemption” time of about 30 to 40 days where you can pay your mortgage and costs.
- Foreclosure has a “redemption” period of 30 days where you can pay your mortgage, with a possibility of an extension.
- Power of sale: the lender must fairly sell the house or property at market value, with any profit to be paid to the homeowner.
- Foreclosure: method where lender does not need to sell house or property at highest price, and profits are kept by the lender.
- Power of sale: the lender can sue if there is a shortfall after sale of house or property.
- Foreclosure: the mortgage lender is not allowed to sue for shortfall after sale of house or property.
Keep in mind, you may be able to stop a power of sale or foreclosure if you can afford to or want to. Remember you, as a homeowner, deserve to have any information you need about your mortgage. You may also request information about the proceedings of your power of sale or foreclosure. If you send a request, and don’t hear anything within 15 days, there may be a suspension in the process.
Below are a few more ways you can avoid a power of sale or foreclosure.
- If at all possible, catch up on missed and outstanding fees and payments. These missed payments are called arrears. Paying is the simplest way to avoid either type of sale. Your mortgage will once again have good standing.
- You can then continue to make payments from then on. You can either do this before, or while the process is before the court.
- File bankruptcy. Remember it is still possible to keep your home while filing bankruptcy if you keep payments on your mortgage current.
- Sell your home yourself, or downsize. Before being evicted, sell your home and buy a smaller property or consider renting until you are financially stable.
- Refinance with a second mortgage. Getting this type of second mortgage will bring your first mortgage to be current. You need to be sure, however, you will be able to afford the future mortgage payments too.
- Restructure your mortgage with a different mortgage lender. You could be able to reduce your monthly payments by finding a different, or private lender.
So, if you find yourself in a situation where you have the choice of foreclosure or power of sale, you will be more aware of what each method of forced sale brings financially, and what to expect. Always speak to a mortgage broker if you need clarification or advice, as the broker can look into your individual case. We all have our own very specific financial needs, and a broker can help you find what is right for you.