What Is a Notice of Sale?

What Is a Notice of Sale?

A notice of sale is a letter that tells you your lender plans to sell your property—like your home or car—because you’ve missed loan payments.

This usually happens when a loan is secured by property, meaning the lender has a legal right to take and sell that property if you fall behind.

If you’ve received this notice, your loan is likely in default, and the lender is taking steps to recover the money by selling what you used the loan to buy. Some people first get a notice of default, but not always. The rules for this process vary by state, but a notice of sale is a clear warning that the lender is moving forward with selling the property.

Secured Debts and Notices of Sale

When you purchase property (such as a car or home) using a loan, that loan is considered secured debt because it is attached to the property itself.

By contrast, credit card debt is  considered unsecured debt because there is no property backing the borrower’s credit.

If you default on a credit card account (like a medical debt account), a lender can’t repossess or take anything away from you personally. Instead, they must file a lawsuit so that they can pursue the amount that they are owed by garnishing your wages, putting a lien on your property, etc. 

Your mortgage is secured debt. If you fail to make payments as agreed, the lender can take your home or land and sell it at a public auction or private sale. By selling the property to the highest bidder, they are hoping to recover the unpaid portion of the loan and any other costs. Costs might include attorney fees, court costs, and the cost of the auction. 

When property is sold at an auction or private sale and the proceeds don’t cover those costs, the lender can seek a deficiency judgment against the borrower. All states have laws governing foreclosure proceedings and the property reclamation process, so you’ll want to research your state’s laws to understand what to expect if you are facing foreclosure. 

If your property is being sold and you are not sure what will happen next, you should contact a local attorney to help you understand your options. 

Houses and Other Real Estate

If you don’t pay your mortgage, the process by which the lender is empowered to take the property back is called foreclosure. There are judicial and nonjudicial foreclosure processes, but only some states allow nonjudicial foreclosures. 

Judicial Foreclosure

A judicial foreclosure proceeds through the local courts. This approach gives the borrower the opportunity to present any defenses they may have. The lender must first notify the property owner of their default, often by certified mail or posting notice at the property.

The judicial foreclosure process can take many months and begins with that notice of default. This time period provides the homeowner a last chance at resuming mortgage payments by paying the delinquent balance, often called reinstatement.

Homeowners may also be able to work out alternative arrangements to avoid foreclosure, depending on their unique circumstances.

Nonjudicial Foreclosure

If you are in a state that allows nonjudicial foreclosures and your mortgage contains a power of sale clause or if your mortgage is in the form of a deed of trust, the sale process may happen much faster.

A notice of sale may be the last step in a nonjudicial foreclosure process. This document will alert you to an upcoming foreclosure sale.

Both types of foreclosures can be tedious and complex and you’ll want to consult a local attorney as soon as possible after learning that you are facing a foreclosure action.

Foreclosure and Auctions

Once the bank reclaims your property, it will likely sell the property at a public auction. This process may vary by state. Before the bank sells the property, it must publish a notice of sale, including a legal description of the property.

Each state dictates specifically what must be included in the notice of sale and how the bank must notify borrowers affected by these notices. 

Foreclosure auctions and trustee sales are required to be held in a public place. Sales are often held at a courthouse or other local government building. 

This process varies by state, but most states allow for a similar window of time wherein the owner may redeem the property by paying the balance. It is essential to act as soon as possible after receiving notice, or you risk losing such opportunities. 

Motor Vehicle Repossession

When a lender reclaims a car, this process is called repossession. When a borrower fails to make auto loan payments, the lender is entitled to take back the associated property because car and truck loans are also secured debt. Just like with the foreclosure process, each state has different laws governing the timeline and process for car repossession. 

Some states allow lenders to keep repossessed vehicles or sell them. Most states require that the lender tell a delinquent borrower what it intends to do with the vehicle even if it doesn't sell it. Details of the sale will often be made public, including a description of the vehicle, the vehicle identification number (VIN), odometer reading, license plate, and/or any other relevant information. 

Let’s Summarize...

Whether you’re behind on mortgage payments or a car loan, if you received a notice of sale it's because your lender plans to settle this secured debt by selling the property securing the loan. They’ve sent you a notice of sale because they are required by state law to notify you in advance. You may be able to use the time before the sale occurs to pay the balance of the loan and keep the property. 

If you aren’t able to pay, you risk having your home foreclosed and auctioned off or your car repossessed and sold. In either case, if the sale price doesn’t cover what you owe, the lender might be able to come after you for the unpaid balance. You’ll want to contact an attorney in your state to help you understand your options and pursue the best plan of action for your unique situation.