As mortgage costs have increased in recent years – and the COVID-19 pandemic has caused many to lose their income – more Canadians are finding it difficult to keep up with their bill payments. But if you are falling behind in your mortgage payments, you may find yourself facing a Power of Sale.
What this essentially means is, that if you cannot pay your mortgage lender what you owe them – plus any additional legal and admin fees that they may have incurred – the courts could give your lender the authority to evict you and sell your home.
What is a Power of Sale?
A Power of Sale is an option that a mortgage lender may use when a borrower becomes unable or unwilling to make their mortgage payments. It is a way that the lender can recoup their money. Through a series of steps (defined by The Mortgage Act, 1990), the lender can issue a notice to the borrower, and after a set period of time, they can take possession of the property and sell it to recover their money.
Unlike with a foreclosure, the lender never gets the title to the property – only the authority to sell it. This means that the borrower gets any leftover proceeds from the sale after the lender (and perhaps other creditors) has recovered their money. It also means that the lender must sell the property at a fair price and not at a deep discount – otherwise, the borrower could sue.
What can borrowers do if they are facing a Power of Sale?
At any point during the Power of Sale process, it is possible for the borrower to stop the Power of Sale – right up until the closing date of the sale. They may do this simply by paying the lender what is owed.
In some cases, it may even make sense for the borrower to sell their home themselves before the lender has a chance to do so.
This can be done using a variety of strategies ranging from digging into savings to refinancing or getting a second mortgage or unsecured loan. The best strategy for any given borrower will depend on their unique circumstances.
This is why in most cases, it pays off to work with a qualified mortgage broker who can work out the best solution.
Can a buyer get a deal by purchasing a home that is under Power of Sale?
If you are in the market to purchase a home, you may be wondering if you can get a better deal by buying a home that is under Power of Sale.
You must remember, however, that the lender is still obligated to sell the home at a fair market value, so you won’t be getting any deep discounts. That being said, buying a property that is under Power of Sale may help you avoid getting into a bidding war with other buyers.
You should however approach these types of purchases with a little bit of caution. A Power of Sale property is usually sold “as is” so you will want to be sure you are aware of any potential issues. Furthermore, you need to be aware that the borrower will be able to stop the Power of Sale right up until your closing date if they can come up with the funds to pay the lender.
Preparing to purchase a Power of Sale home
If you are comfortable with purchasing a Power of Sale home and are aware of the potential pitfalls, it could be a good move. It is highly recommended however that you hire a home inspector and make your purchase conditional on a satisfactory home inspection.
Final thoughts
A Power of Sale is an unpleasant situation to be in but this process is sometimes necessary in order to protect the lender. If you find yourself in this situation, it is best to speak with the lender or your mortgage broker as early as possible so that you may resolve the issue quickly. And if you are thinking about buying a Power of Sale property, it is recommended that you work with a real estate professional who has expertise in buying these types of properties.