With the recent events in the financial world, we are likely to see an increase in the number of homes that will be sold through the process called “Power of Sale”. These home can be an excellent buying opportunity in a difficult real estate market.
What exactly is that and how is it different from the “Foreclosures” in the States?
Normally, it is the homeowner that sells their home to the buyer. In Power of Sale, the bank as lender sells the home without ever taking ownership directly.
If a Canadian homeowner falls behind in making their mortgage payments, the bank has a process to terminate the mortgage and get their money out. Firstly, the mortgage will be a few months behind in payments, then the bank will issue notices to the homeowner advising them of the need to pay-up the outstanding amounts of the loan.
After sufficient notice period, the bank will begin the power of sale. They have the property listed for sale with a Real Estate Agent, and they can seek a buyer for the home. However, they do need to ensure they sell it for fair market value, otherwise the owner can sue the bank for the difference. The bank wants to recover the amount of the loan and cover their legal costs. Any money in addition to that left over from the sale is returned to the homeowner. But, if there is still a shortfall after the bank sells the home, the bank can still sue the homeowner for the remainder of the loan.
So, here is a big difference to the US market. In the States, the bank usually takes over ownership of the home first and then sells the home on the open market. They can sell the home for whatever they can get for it, and then if there is a shortfall they have no further recourse to sue the original homeowner. This is Foreclosure. If the homeowner makes an arrangement with the bank to sell the home, below the value of the mortgage-balance with the proceeds going to the bank, then its called “Short-Sale”.
Here in Canada, the bank does not take ownership of the home, they must sell for fair market value and they can still go after the homeowner for more money.
As a buyer of a power of sale home, you need to be aware that the original homeowner could step in at any time and pay-off the mortgage. This would cancel the power of sale! That can occur right up until closing. Further there are no guarantees from the seller about the condition of the property, what is included or what is in working condition.
I am a modern professional RE/MAX agent. I focus on real estate on the west-side of Toronto, including the downtown condos, High Park, Bloor West Village, Swansea, Kingsway, Sunnylea, Etobicoke and into Mississauga.
Now that you know a little bit more about how Power of Sale works, if you are looking at finding the values on the this market, Ralph Evans and the Real Estate Help Desk is here to help! Access my list of power of sale properties in the area you are interested in. let me keep you informed about new power of sale properties as they get listed.
Let me know how I can help you!