Also known as: powers to foreclose · foreclosure power · right to foreclose
Written by attorneys — see sources below.
The authority of a mortgagee or secured creditor to terminate the mortgagor's equity of redemption and sell the encumbered property to satisfy the debt. This authority arises upon the mortgagor's default and is typically triggered by acceleration of the full obligation under the note or mortgage. Exercise of the power requires compliance with any statutory notice or cure requirements and must occur in good faith.
Perry Pratt borrowed funds from Pinnacle Holdings secured by a mortgage on commercial property. After Pratt missed two installment payments, Pinnacle exercised its contractual right to accelerate the entire debt. Pinnacle then initiated nonjudicial foreclosure proceedings to sell the property and recover the full balance due.
Paul Peterson and his spouse held property as tenants by the entirety. The United States obtained a tax lien against Peterson alone. The government exercised its power to foreclose the lien by selling the entire property and accounting to the non-liable spouse for her interest.
In 1988, the Internal Revenue Service assessed $482,446 in unpaid income tax liabilities against Don Craft for his failure to file federal income tax returns for the years 1979 through 1986. At that time, Don Craft and his wife, respondent Sandra L. Craft, owned a piece of real property in Grand Rapids, Michigan, as tenants by the entirety. After notice of the federal tax lien was filed, the Crafts jointly executed a quitclaim deed purporting to transfer Don Craft's interest in the property to Sandra Craft for one dollar. When Sandra Craft later attempted to sell the property, a title search revealed the lien. The IRS agreed to release the lien to allow the sale on the condition that half of the net proceeds be held in escrow pending determination of the Government's interest. Sandra Craft then brought an action in the United States District Court for the Western District of Michigan to quiet title to the escrowed proceeds. The District Court granted summary judgment to the Government. On appeal, the United States Court of Appeals for the Sixth Circuit held that the tax lien did not attach to the property under Michigan law and remanded for consideration of the Government's fraudulent conveyance claim. On remand, the District Court found that the conveyance itself was not fraudulent but that the use of nonexempt funds to pay the mortgage constituted a fraudulent act, and it awarded the IRS a share of the proceeds. The Sixth Circuit affirmed that determination on the lien issue as law of the case. The Supreme Court granted certiorari to consider whether Don Craft had a separate interest in the entireties property to which the federal tax lien attached.
View caseDefault by the mortgagor, such as failure to pay an installment or breach of a covenant, activates the power. The mortgage or note usually contains an acceleration clause that makes the entire debt due upon default. Acceleration must be exercised in good faith and may require notice or a cure period in some jurisdictions.
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Yes. When the secured obligation is transferred, the mortgage follows the debt by operation of law unless the parties expressly agree otherwise. The transferee therefore acquires both the right to collect and the power to foreclose without needing a separate recorded assignment.
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A valid deed in lieu transfers title to the mortgagee in full satisfaction of the debt and ends the foreclosure right as to that mortgagee. The deed must be voluntary and supported by consideration. Junior lienholders not party to the deed may still assert their interests depending on jurisdiction.
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…cannot be unilaterally alienated. In United States v. Rodgers , 461 U. S. 677 (1983), we considered the Federal Government's power to foreclose homestead property attached by a federal tax lien. Texas law provided that " the owner or claimant of the property claimed as homestead [may not], if married, sell or abandon the homestead…