How Do I Foreclose on Carry Back?

Does your contract have a power of sale clause?

If you've seller-financed a home to a buyer who is now in default, often referred to as a carry back, it may be time to foreclose. Review your loan terms before you begin and determine if you need to file a judicial or non-judicial foreclosure action. A non-judicial action is easier, faster and less expensive because it does not involve the courts.

Things You'll Need

• Deed of trust or mortgage document
• Current contact information of trustor
• Notice of default
• Attorney

Instructions

Non-Judicial Foreclosure

1. Read your deed of trust or mortgage. If you have a "power of sale" clause, you may foreclose non-judicially. If not, you must use the court to foreclose.

2. Notify the trustee that the trustor, or buyer, defaulted on the loan. Include the date of default, the amount owed and instructions for notifying the trustor that the potential for a non-judicial foreclosure exists. The town or county clerk will record the notice.

3. Issue the notice of default directly to the buyer if you are working directly with him. Provide the same details as you would the trustee, but also include the amount of time the buyer has to remedy the default. You may need to confer with an attorney to review your state's laws. Record the notice with the town or county clerk.

4. Instruct the trustee to provide a notice of sale to the trustor if the trustor does not remedy the default. The trustee will advertise the sale in the newspaper and place a sign on the property alerting passersby of the impending sale. The seller may also do this himself if he is not working with a trustee.

5. The trustee or the seller's agent will conduct a foreclosure sale if the buyer does not cure the default. The seller retains all the proceeds.

Judicial Foreclosure

1. Hire an attorney to draft and file a foreclosure lawsuit against the buyer. A judicial foreclosure proceeding is necessary if your deed of trust of mortgage does not contain a "power of sale" clause.

2. Advertise a foreclosure sale notice by placing a sign on the property. This is a court ordered process.

3. Conduct a sale through a court-appointed representative, such as a sheriff, as set forth by the court. The property sells to the highest bidder.

Tips & Warnings

• Sellers sometimes initiate both non-judicial and judicial foreclosure actions simultaneously.

• For a judicial foreclosure, the seller retains the right to bid on the property or to retain the sale proceeds.

• Hiring an experienced real estate attorney will protect you from accidentally violating state laws.

References

• Foreclosure; Owner Financing -- the Foreclosure Process; Craig Meriwether; Sep. 2, 2010