Trustee’s sale on the mortgaged real estate

A mortgage holder or carryback seller holding a note secured by a trust deed in default has two foreclosure methods available to enforce collection of the mortgage debt. These two foreclosure methods are:

  • a judicial foreclosure sale, also called a sheriff’s sale [ Code of Civil Procedure §726]; or
  • a nonjudicial foreclosure sale, also called a trustee’s sale. [Calif. Civil Code §2924]

The key to the mortgage holder’s ability to nonjudicially foreclose by a trustee’s sale on the mortgaged real estate is the power-of-sale provision contained in the mortgage, also called a trust deed.

Other security devices used to create a lien on real estate to secure a debt which may also contain a power-of-sale provision include:

  • a land sale contract [Petersen Hartell (1985) 40 C3d 102; see RPI Form 168];
  • a lease-option sale [See RPI Form 163 §19];
  • a homeowners’ association (HOA)’s conditions, covenants and restrictions (CC&Rs) regarding assessment liens;
  • bonded improvement assessments; or
  • a UCC-1 financing statement. [Lovelady Bryson Escrow,  Inc. (1994) 27 CA4th 25; see RPI Form 436-1]

The grant of the power-of-sale by the owner of a property provides a private contract remedy for the recovery of money by a creditor, typically a mortgage holder. The power-of-sale is voluntarily agreed to by the owner of the mortgaged property, authorizing the mortgage holder on a default to hold a nonjudicial foreclosure sale of the property by public auction. [CC §2924]

If the note evidences a recourse debt with a remaining balance exceeding the fair price of the mortgage holder’s security position in real estate, the mortgage holder may want to choose a judicial foreclosure. A judicial foreclosure action allows the mortgage holder to seek a money judgment for any deficiency in the property’s value to satisfy the debt.

However, by foreclosing under the power-of-sale provision, the mortgage holder avoids a costly (and potentially time-consuming) court action for judicial foreclosure.

Further, when a mortgage holder completes a nonjudicial foreclosure, it cannot later obtain a deficiency judgment against the owner of the mortgaged real estate. Alternatively, the owner cannot redeem the property after the mortgage holder’s trustee’s sale as they can after a judicial foreclosure sale.