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Foreclosure is actually a good money making business in the world of real estate. Investors are making millions off foreclosure properties. Unfortunately they are thriving off individuals who are losing their homes. Below is a brief guide on foreclosure by power of sale 101.

Generally, a person can loan some amount against his property to a bank or other lending institution. The higher the market value of the property, the higher the loan amount will be. As soon as the contract is sealed, the mortgage loan is issued. This gives the lender the right to foreclose on the property if the money is not paid according to the loan terms. Foreclosures can be judicial or by a trustee sale invoked upon a power of sale clause in the loan’s deed of trust.

What is a Judicial Foreclosure?

The proceedings of judicial foreclosure are supervised by the court within the presence of all involved parties and lawyers. This ensures that the judiciary system and all issues are dealt with properly and according to the law.

What is Foreclosure by Power of Sale?

A lender does not need the supervision of the courts to initiate a foreclosure by power of sale. Lenders often prefer power of sale foreclosure proceedings because they tend to be faster and less expensive. The proceeds from the sale of the property will first go to the mortgage holder (lender or bank), then if there is anything left over the lien holders and borrower will receive it.

Advantages and Disadvantages of Power of Sale Foreclosure

• If there are title problems with the property such as actual deed defects or liens and lessees, a power of sale foreclosure can only be resolved judicially.
• Deficiency judgments are prohibited in most jurisdictions. This means that the mortgage holder cannot sue the borrower for a deficiency judgment.
• Foreclosure by power of sale must already be specified in the mortgage contract in order for it to take place.
• A mortgage in the form of an absolute deed prevents foreclosure by power of sale.

Foreclosure by Power of Sale is Mandated by:

Deed of Trust

The majority of jurisdictions prohibit a foreclosure by the power of sale without a deed of trust present. This entity is the third party or known as the trustee. The trustee is entrusted by the lender to hold the mortgaged property and mandated by the lender to act on the foreclosure without any questions.

The trustee will take charge of the foreclosure proceedings, and the deed of trust will allow the mortgage holder to bid on the foreclosed property during the auction, provided that both parties are not closely associated. If they are, the mortgage holder/lender is forbidden to bid.

Power of Sale Constitutional Issues

Although this procedure has been controversial, for the best interest of all parties involved the lender is still required to post a Notice of Sale advertisement in the local newspaper within the jurisdiction that the property is located.

The Fourteenth Amendment of the U.S. Constitution mandates the notice of sale and hearing requirement. However this issue has been met with much controversy and there doesn’t't seem to be a specific answer yet. So far it seems that a public notice of sale is required for judicial foreclosures, but not for non-judicial foreclosures.

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In 1938, The Fannie Mae Corporation was established by the US Government to promote the growth of home ownership by providing a secondary mortgage market. What is a secondary mortgage market? Well, the secondary mortgage market exists in the buying and selling of a mortgage from one lender to another. The bank, or Mortgage Company that provided you with your loan, can turn around and seek to sell your mortgage to a company such as Fannie Mae. This frees up their cash to make another mortgage loan. And the cycle of growth is expanded and sustained in this manner. The idea and concept worked, and today, Fannie Mae has helped millions of Americans achieve the dream of home ownership. Until recently, Fannie Mae was a part of the US Government, and was overseen by the Housing and Urban Development branch of that government. Now, however, Fannie Mae is a privately held, stock ownership company that promotes the growth of the housing industry by making it possible for many low-to-middle income Americans to own homes. Investors just like you and I can purchase stock in the Fannie Mae Corporation, and not only increase our won wealth, but also help to fund the home ownership possibilities for a new generation of Americans.

In 1968, just thirty years after her government commissioned birth, Fannie Mae became a private company operating with private capital. She had outgrown her need for federal funding and supervision. That does not mean, however, that the government does not still closely work with the Fannie Mae Corporation. It does. The housing industry has continued to grow, and currently the entire mortgage market is experiencing phenomenal success. Fannie Mae’s focus, however, is still on the low to middle-income American.
Fannie Mae deals only in the secondary mortgage market, this way the Fannie Mae Corporation can ensure that money for mortgages is available throughout the 50 states and that as many homeowners as possible can take advantage of home ownership.

How does Fannie Mae continue to fund the mortgages that she buys? Through the issuance of mortgage backed securities. These securities known as MBS are issued to investors. When Fannie Mae issues the MBS, she is guaranteeing the investors a return on their investment, and at the same time, providing a source of funding for issuing further mortgages. This provides the nation’s lenders with a steady stream of cash to continue to make mortgages available to the consumer.

How does all this relate to the home of your dreams? Well, stop just a moment to connect all the dots. Fannie Mae buys mortgages from your local lender. The lender receives the proceeds from that purchase, and can then offer a new mortgage to you. It’s a steady and continual circle of growth. Why? Well, Fannie Mae isn’t the only lender in the secondary mortgage market. Insurance companies, pension funds, securities dealers, and other financial institutions buy mortgages on the secondary market. Who invests in these insurance companies, pension funds and securities dealers? Where do they get their money? From taxpayers just like you. Mortgage holders just like you. Now can you see how Fannie Mae and other mortgage lenders in the secondary mortgage market, work to foster home ownership and community growth, all in one process?

The primary focus for Fannie Mae, operating under a government directive, is to provide the maximum amount of help to lenders in making mortgage loans to the low, to middle, to moderate income families across America. Fannie Mae is also involved in a nationwide effort to join with lenders and community partners to create even more home ownership possibilities.

Through this partnering, and the existence of FHA backed mortgage loans, the Fannie Mae Corporation and your local lender can offer a greater variety of loan products, and reach a much broader client base. This increases once again, the homeownership possibility for many, more Americans. Thanks to the expanding mortgage product line, the increase in real estate values, and the efforts of Fannie Mae, more Americans own their own home than ever before. Where will the future take Fannie Mae, and corporations like her? I think the Fannie Mae Corporation will continue to foster growth and the realization of the American Dream for many successful years to come.

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