Power of Sale covenant present in mortgage or deed of trust gives the lender or the trustee the right to foreclose the loan in default by filing a notice of default with the county or public recorder’s office. Once the notice is filed, the lender or trustee is required to follow statutory steps related to advertising the auction/sale of the property. Most of the non-judicial foreclosure states provide for redemption of the foreclosed homes under most circumstances. This makes up for the short and expedited pre-foreclosure process.

Steps involved in the non-judicial foreclosure of a residential property :

1. Borrower is at least 30-90 days (2-3 months) behind on their mortgage payments.
2. Trustee/Lender files a notice of default with the county.
3. The pubic sale date is set.
4. The date of auction/sale is published and advertised as required.
5. In case of a satisfactory bid, the property is sold to the highest bidder. Otherwise, the lender may choose to take back the property and hold it as REO.
6. Deficiency judgment may be entered against the borrower if the property is sold for less than the total outstanding balance.
7. Depending on the redemption rights, the borrower can get the property back by paying all the owned monies.
8. A trustee’s deed is given to the highest bidder after the stuatory redemption duration has lapsed.

Judicial foreclosure process is carried out through the courts system. In states that allow judicial foreclosures process on mortgage and deed of trust loans, the lender files a lawsuit to foreclose against the borrower and other lien holders who held any interest in the property prior to the lender recording mortgage or deed of trust. All the interested parties, primarily the borrower (mortgagor or trustor) are given notice of the pending lawsuit.

In addition, a lis pendens (suit-pending) is immediately filed with the local county to notify the general public about the pending foreclosure lawsuit filed against the property owner. A time period of atleast 20 days is typically given to the property owner and other concerned parties to respond formally to the filed foreclosure lawsuit. In the event of non reply, the presiding judge by default rules against the defendants and orders the sale of property at a public action to satisfy the lender’s claim, according to the state’s procedure.

Steps involved in the judicial foreclosure of a residential property :

1. Borrower is at least 30-90 days (2-3 months) behind on their mortgage payments.
2. In the court with the jurisdiction, the lien-holder files a lawsuit to foreclose on the property whose payments are in default.
3. All the parties named in the lawsuit are formally notified of the filed foreclosure lawsuit. They are given due time to formally respond to the pending lawsuit
4. A Lis Pendens that notifies the general public of the pending foreclosure lawsuit against the property owner is filed.
5. If the Borrower responds to the lawsuit, then a hearing date is set.
6. At the hearing date, if there is any merit to the borrower’s argument, the judge may decide to dismiss/delay the lawsuit or may order the loan to be foreclosed. If foreclosure judgment is granted, the property will be scheduled for foreclosure auction sale.
7. The foreclosure auction sale is advertised. Local newspapers carry these advertisements on predetermined dates.
8. At the foreclosure auction, the property will be auctioned off to the highest bidder if it meets lender’s expectaions. If the bid is not sufficient, the lender may choose to take back the property. Such unsold foreclosure properties that are retained by the lender are called REOs (Real Estate Owned).
9. If the bid accepted by the lender is below the foreclosure judgment amount, the lender can approach the court to get a deficiency judgment issued against the borrower.
10. If the state allows for redemption rights, the borrower may payoff the amount owed to the lender and claim the property back within the allowed redemption period.
11. Once the statutory redemption period expires, the highest bidder at the auction will be given the sheriff’s deed or certificate to give complete legal possession of the property.

In Alabama, there isn’t much significance to the type of the legal instrument used, as either of them allow a lender to pursue a non-judicial process even in the absence of a Power of Sale clause. These laws are quite favorable to the lien holders/lenders/banks as they allow for an expedited pre-foreclosure process compared to several other states. The entire process typically lasts from 30 - 90 days.

Alabama Foreclosure Law Summary
Time line:	30 - 90 days
Redemption Period:	Up to 12 Months from the date of sale
Deficiency Judgments:	Allowed
Judicial Process:	Yes, but very rare
Non-Judicial Process:	Yes, commonly used
Legal Security Instruments:	Both Mortgage and Deed of Trust

The following are direct links to the laws that govern Alabama Foreclosures:

Article 1: Powers Contained in Mortgages.

• Section 35-10-1 Power of sale constitutes part of security; by whom executed; effect of conveyance; index of foreclosure deeds.
• Section 35-10-2 Sale under power where instrument silent as to place or terms of sale.
• Section 35-10-3 Foreclosure when instrument contains no power of sale.
• Section 35-10-4 Sale of lands situated in two or more counties.
• Section 35-10-5 Foreclosure deed conveys legal title.
• Section 35-10-6 Additional satisfaction permitted under continuing power of sale.
• Section 35-10-7 Sale to be held in county where property situated.
• Section 35-10-8 How notice of sale given.
• Section 35-10-9 Sales contrary to article null and void.
• Section 35-10-10 Sections 35-10-7 through 35-10-9 not applicable to mortgages or deeds of trust executed before September 29, 1923.

Article 1A: Foreclosure by Power of Sale for Mortgages Executed After December 31, 1988.

• Section 35-10-11 Definitions.
• Section 35-10-12 Execution of foreclosure by power of sale; effect; indexing of deeds.
• Section 35-10-13 Notice of sale; minimum standards.
• Section 35-10-14 Place and time for conducting foreclosure by power of sale.
• Section 35-10-15 Successive sales under power permitted.
• Section 35-10-16 Law governing applicability.

Article 2: Satisfaction of Mortgage Liens.

• Section 35-10-20 When indebtedness presumed to have been paid.
• Section 35-10-21 When payment required to be entered in record.
• Section 35-10-22 Partial payments - When entered on margin of record.
• Section 35-10-23 Partial payments - Notices or demands to enter partial payments or satisfaction.
• Section 35-10-24 Partial payments - Entry by execution and delivery of separate instrument.
• Section 35-10-25 Executors and administrators authorized to execute releases, etc.
• Section 35-10-26 Title re vested upon payment of debt.
• Section 35-10-27 Entry of full payment or satisfaction in record - Generally.
• Section 35-10-28 Entry of full payment or satisfaction in record - Satisfaction by one of several joint mortgagees, etc.
• Section 35-10-29 Entry of full payment or satisfaction in record - Vendor’s or other lien reserved in conveyance.
• Section 35-10-30 Penalty.

Article 3: Deeds in Lieu of Foreclosure.

• Section 35-10-50 Definitions.
• Section 35-10-51 Effect of deed in lieu of foreclosure.

Other Law Resources:

• Section 35-10-50 Definitions.
• Section 35-10-51 Effect of deed in lieu of foreclosure.

Dear Valued Business Partner:

Over the last four decades, Countrywide has enabled approximately 20 million borrowers to achieve the dream of homeownership. In order to enhance what we have worked so hard to build over the years, Countrywide has taken a decisive step to ensure our continued industry leadership. Today, we announced that Bank of America, which has been an important financial partner of Countrywide for many years, will be acquiring our Company. BofA is one of the largest and most influential financial institutions in the United States and internationally, and we firmly believe that the combination of Countrywide and BofA will create the most powerful mortgage franchise in the world.

As you will see in the below press release announcing this transaction, BofA has announced that it plans to operate Countrywide separately under the Countrywide brand, with integration occurring no sooner than 2009. We are confident that both our servicing and origination businesses, as well as other aspects of our operations will be substantially enhanced as a result of this transaction. Notable, in statements from BofA today, is the mention of the Wholesale distribution network.

Bank of America Agrees to Purchase Countrywide Financial Corp. (PDF of Press Release)

Please know that Countrywide deeply appreciates our partnership with you — past, present and future.

For nearly 40 years, we have focused on real estate finance and have helped millions of Americans realize the dream of homeownership. Thank you for continuing to choose Countrywide. Your partnership is invaluable, and we look forward to continuing to play a critical role in your long-term growth and success.

Todd A. Dal Porto
Senior Managing Director and President
Countrywide®, America’s Wholesale Lender®

Countrywide is one of the biggest contributors to the current crisis facing the nation. It originated the highest volume of loans during the housing boom years. With its extensive network of mortgage brokers, correspondent lending channel, and retail outlets, Countrywide  originated every type of risky loans in bulk, from Option ARMs to 106% NINJA Loans. Countrywide used to primarily originate loans backed by GSEs before it lead the sub-prime lending mania. It is hard to imagine that a company that has been in the lending business for close to 40 years has thrown caution to the wind, just like hundreds of fly by night sub-prime niche lenders that mushroomed during the height of mortgage boom. In the case of Countrywide, their old habits died pretty fast and their new habits brought them to the brink of bankruptcy many times in the past 7 months. The rumors two days ago implied at the impending bankruptcy as analysts warned that Countrywide may not last more than two weeks without new capital infusion.

Yesterday, there were rumors of an acquisition and the stock rallied. The widely predicted suitor is none other than Bank of America. Bank of America had already invested $2 billion in Countrywide a few months ago to save it from near bankruptcy at that time. Bank of America had been itching to buy countrywide to get hold of its huge servicing portfolio, along with its established lending channels. It may think that it is paying a paltry sum to buy Countrywide, but the risks inherent in the mortgage portfolios that countrywide holds may not be fully apparent at this time. The rise of tide of foreclosures and the attached costs it imposes on the servicing side may only become apparent  in the upcoming months. Moody’s has already indicated that it may cut Bank of America’s credit rating very soon.

Without today’s announced deal, Countrywide which services almost $1.5 trillion dollars in loans would’ve declared bankruptcy in a few weeks. This could have triggered huge panic and disarray among the homeowners who make payments to it and the investors who receive those payments from it. Bank of America could also be under pressure from the Federal Reserve and the Government to step in and buy Countrywide to prevent it from going under in a face saving measure to avoid more catastrophic effects to the already frozen credit markets.

There is already discussion of a merger between two other past high fliers in the mortgage sector, Washington Mutual and JPMorganChase. There will be no end in sight to the current carnage until there is an end to the rapidly dropping home prices and the ever increasing unsold homes inventory. With a looming recession, almost non-existent credit markets, and a dire economic forecast for 2008, we may need a miracle after all to get out of this mess without going through another Great Depression. I guess this is how history likes to rhyme without repeating itself.

Pennsylvania (PA) follows the judicial foreclosure process as it uses the mortgage as the legal instrument. So, the entire process is handled through the courts. This form of foreclosure process is not favorable towards the mortgage lenders/banks because it is more time consuming and involves following strict legal procedural steps. There are no trustees or third parties involved, so the lien holder is the only entity that can initiate the foreclosure process.

Judicial Foreclosure Process is more favorable to the property owner in default as it usually allows them more time to either settle their debt, sell the property, or look for other favorable alternatives than facing a foreclosure auction. In contrast to the non-judicial(trustee) process, judicial process typically allows the home owner to occupy the property for a longer period due to extended pre-foreclosure period.

When a borrower fails to make repayments according their mortgage agreement, the acceleration clause, which is a standard part of any mortgage allows the lender to call on the entire debt owed to them, not just the mortgage outstanding payments. Lenders typically initiate the foreclosure process after the borrower is a least 60 days behind on their mortgage payments. “Power of Sale” clause is not part of mortgage agreement and thus the lender has to sue the borrower to recover the debt.

The lender is required to send a notice by registered or certified mail stating their intention to foreclose due to the borrower’s non-payment of mortgage.The notice should give borrower a minimum of 30 days time to make their outstanding payments while also detailing the effects of the acceleration clause. Along with this notice, other information related to the options available to the borrower are also included.

When a borrower doesn’t take any action, the lender approaches the court and files a foreclosure lawsuit to recover the entire amount owed to them. A title search has to be ordered and it should accompany the lawsuit. Once the court determines that the borrower is in default on his/her mortgage payments, then an order of sale along with an auction date is issued.

The Sheriff has to serve the order of sale to the borrower within 30 days; otherwise, the court order has to be reinstated. This notice is usually served within 20 days. From the time of receipt of this notice, the borrower is given 20 days to file their response.

If the borrower doesn’t file any response or cure the debt with in those 20 days, the plaintiff has to send another notice. This notice clearly states the consequences of not resolving the debt. From the time the borrower receives this notice, they have 10 days to respond.

Once the 10 days have passed without any response, default judgment along with a Writ of Execution is entered and an auction date for the Sheriff Sale is set. The notice of Sheriff Sale auction has to served to the borrower/defendants at least 30 days before the auction date. All the other lien holders on the property as determined by the title search must also be sent notices of the impending foreclosure auction. The auction can be postponed and be rescheduled with in 100 days. Any subsequent postponements require a court order.

Depending on the individual sheriff departments and schedules, a sheriff sale auction is scheduled with in a 2 - 4 month time window. It is possible for the borrower to avoid the auction by paying off the debt up until an hour before the scheduled time for auction.

If the property sells at the foreclosure auction at a price that is satisfactory to the lender, the property is sold off. Pennsylvania doesn’t allow the borrower any remedies for redemption after the sale. This basically means that a borrower can’t pay back the debt they owed and get back the property after it is sold.

If the lender accepts a bid that is not sufficient to cover the entire debt they were owed, they can request the court for a deficiency judgment within a period of 6 months from the sale.

Pennsylvania Foreclosure Laws, process,and notices are primarily based on:

• Pa.R.C.P. Rules 1141-1164 (Actions to Foreclose a Mortgage)
• 3180-3183 (Judgments in Mortgage Foreclosure)
• 8103 et seq. (Deficiency Judgments).
• The Loan Interest & Protection Law, 41 P.S. § 101 et seq. (Act 6)
• The Homeowners’ Emergency Assistance Act, 35 P.S. sec. 1680.401 et seq. (Act 91).

Pennsylvania State Code contains information about these laws/statutes and for detailed information, visit the site and search.

PA Foreclosure Law Links:

• NOTES ON MORTGAGE FORECLOSURE LAWS IN PENNSYLVANIAA list of cases that summarize the position of the U.S. Supreme Court and Pennsylvania courts on certain procedural and substantive due process considerations to be followed in a mortgage foreclosure in PA. There is also a summary of Pennsylvania notice requirements imposed in certain cases by statute or the Rules of Civil Procedure.
• § 7.1. Scope - PA Law which regulates lawful interest rates as to foreclosures.
• § 7.4. Notice of intention to foreclose mortgage - PA Law which regulates the manner in which a lender has to notify a borrower of foreclosure.
• Rule 410. Real Property Actions - PA Law which regulates the necessary process actions to foreclose on an owner.
• Rule 430. Service Pursuant to Special Order of Court Publication - PA Law that allows the publication of a scheduled sheriff auction.
• Rule 1037. Judgment Upon Default or Admission. Assessment of Damages - PA Law which regulates the right of the borrower or court clerk to file a complaint against the foreclosing lender.
• Rule 3104. Writ of Execution. Entry. Lien - PA Law which regulates how a writ of execution becomes a lien against real property.
• Rule 3180. Judgment; execution - PA Law which regulates how a foreclosure judgment is enforced.
• Rule 3256. Precipe for writ; mortgage foreclosure - PA Law which regulates the necessary information that needs to be on a writ of execution in order for it to be valid.
• Rule 3276 - Deficiency Judgments - PA Laws regarding deficiency judgments
• Rule 3277. Definitions – (Liens) - PA Law which regulates the legal description of various liens and judgments.
• Pending or Newly Effected Legislation for Your State?
  Please select the Legislative Agenda link here: http://narhri.org/

The exact location of the foreclosure auction is, First District Plaza, 3801 Market Street, 3rd Floor, Philadelphia, PA. There is parking available in the basement of the building. The auction room is on the third floor, it’s a big spacious room with ample seating. I prefer to sit in the back of the room, as it allows me to see all the bidders involved in the auction.