Non-judicial foreclosure (foreclosure by advertisement)

When you purchased your home, you signed a mortgage and a note. The note is your personal promise to pay back the money you borrowed. The mortgage is the security used to guarantee the promise. Your mortgage may contain a clause that gives the bank the right to foreclose if you don’t make your payments as specified in the mortgage. This grants the bank power of sale. If you live in a state that allows power of sale and your mortgage contains a power-of-sale clause, your bank can foreclose without having to file suit against you. The same may be true if you have a deed of trust instead of a mortgage. Some deeds of trust include in them the right to foreclose nonjudicially. The note and the mortgage can be enforced separately — the note is personal, and the mortgage is backed by collateral (your home). If the bank can get the money from you personally, it doesn’t have to foreclose; it can collect the money and leave your collateral alone. People who aren’t making their mortgage payments, however, rarely have much money lying around, so the bank usually goes after the collateral by foreclosing on the mortgage. Read your mortgage and note carefully to determine your rights and the rights your bank has in collecting the debt. The mortgage typically contains one or more of the following:

• Due on sale (due on transfer) clause: The due on sale clause just says that if you sell the house, the proceeds of the sale must pay off the mortgage balance in full before you get any remaining proceeds.
• Power of sale provision: If your mortgage contains power of sale language, all the bank needs to do to foreclose is publicly advertise the intent to foreclose and notify you (or at least try to notify you) prior to the sale (which happens at an auction). The number of days or weeks the advertisement must be posted prior to sale varies by state. Without a power of sale provision or a deed of trust, a judicial foreclosure is typically required, assuming your jurisdiction allows for it. With a judicial foreclosure, the bank must work through the courts to foreclose, which may provide you with additional legal options to at least delay the foreclosure proceedings. Review your mortgage carefully to determine whether it grants the bank power of sale. A short phrase like “This mortgage is granted a power of sale by advertisement” may be all that’s there — but that’s all the bank needs.
• Acceleration clause: An acceleration clause allows the bank to call in the whole balance due in the event of missed payments. Without an acceleration clause, the bank would have to declare a separate default for each missed payment as each payment is missed. An acceleration clause allows a missed payment to be considered a default of the whole and allows the bank to call the full balance due.