If you borrowed money to purchase a home or car, that loan is secured by the property you purchased with the credit you were extended. In other words, your lender can reclaim that property once you stop making your payments. If you've received a notice of sale, your lender plans to sell the property that secures your loan. Read on to learn more about what a notice of sale could mean for you and what you can do about it.
Written by Attorney Cody J. Harding.
Updated October 1, 2021
Are you wondering why you’ve received a notice of sale? Whether it is for your home, your automobile, or some other property, you’ve received the notice because you haven’t made all of your loan payments and your account is in default. Now, your lender plans to sell the property that secures your loan.
If you borrowed money to purchase a home or car, that loan is secured by the property you purchased with the credit you were extended. In other words, your lender can reclaim that property once you stop making your payments. You may first have received a notice of default, although each state governs the reclamation process differently. Either way, a notice of sale indicates that the lender plans to sell the property because your account is overdue.
Your Mortgage Is Secured Debt
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.
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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.
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.
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.
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.
In California, for example, the notice of sale must be sent 21 days before the sale and include the time, location, and date of the sale, as well as the property address, the foreclosure trustee’s name, address, and phone number. 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.
In California, in addition to sending you this notice via certified mail, the lender must also post the notice to the property and publish it in a newspaper of general circulation in the county where your property is located for 3 consecutive weeks. California allows borrowers to cure a default by paying the loan in full up to 5 days before the property is sold at auction. 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.
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.
In Florida, a lender may decide to keep a car or sell it at a public or private auction. If the car is sold at a public auction, the lender must inform the borrower about the date the car will be sold to a new owner. If the car is sold privately by a vehicle dealer, the borrower will be given a date after which the vehicle will be sold. The sale must be commercially reasonable, but doesn’t have to cover the full value of the loan.
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.