A power of sale can significantly affect your long-term financial well-being, including your home equity and credit score. Learning how to navigate the process can mitigate the impacts. That starts by understanding 5 ways a power of sale can impact your financial future.
Mortgage Broker Store is a private lender that can help you with a power of sale by supplying money to stop the process. Their interest-only loans are based on the market value of the property.
A power of sale can negatively affect your credit score. According to Equifax, if a score falls below 560, borrowers may have problems getting credit and getting new loans.
A power of sale usually starts after a borrower misses one or more mortgage payments. However, a breach of a covenant in the mortgage agreement can also trigger this process. Examples include using the property for illegal activities, not paying taxes, or failing to insure it properly. Damaging a property on purpose can also trigger a violation.
Late mortgage payments and ones that get missed are reported to credit bureaus like Equifax and TransUnion. That means a borrower’s credit score can be affected because the payment history accounts for 35% of that number. Equifax reports that the scoring models used to develop credit scores look at how late payments might be, how much is owed and how often they were missed. The credit scoring model also examines how recently you’ve missed the last payment.
If you default on the mortgage, that can stay on your credit report for 6 years. These get reported as a public record.
The lender who starts a power of sale can evict the borrower and their family and resell the house. The borrower has a Redemption Period to bring the mortgage up to date or pay it off.
Here’s how that works after a mortgage deficiency.
At the end of that process, the former homeowner gets what’s left from the sale after a power of sale following a mortgage deficiency.
If the lender can’t get all their money back and the entire investment principal from the sale, they can file a writ of execution for the remaining money.
Of course, if a borrower loses their house to a power of sale, their equity is affected. If the process goes through, the property is sold, and the homeowner will receive any remaining money after everyone else has been paid. Once all the costs are figured in, however, the homeowner often receives no proceeds from the sale of the property, which means they’ve lost their equity.
A power of sale can leave the homeowner with no money after the sale of the house. This means all the equity they’ve built up has been depleted, and additional money obligations can exist.
Several things must be considered after a borrower has experienced a power of sale. These will negatively affect their ability to qualify for a loan.
Their credit score gets damaged. Falling below a certain number makes it harder to qualify for a traditional loan. Equifax reports that a score below the 560 mark is generally considered poor. Borrowers who have gone through a power of sale and have a bad credit score need to make larger down payments and even have a cosigner to get a bank loan. Borrowers can also work on improving their credit score over time and may qualify for traditional loans again after rebuilding their credit.
It’s important to consider that a private lender accepts bad credit mortgage applications. Their criteria are based on the equity you’ve built rather than your credit score. Equity represents the part of the property that you own. The number is arrived at by subtracting outstanding debts and mortgages from the current market value.
Traditional lenders can view a power of sale on your credit report to decide if you can manage your money and debts. According to Equifax, several factors affect your credit score. Number one is on-time payments, at 35%. If the power of sale was triggered by missing one or more of these payments, banks may completely deny your loan application.
Some borrowers in this situation will face unfavourable loan terms. They won’t be able to get unsecured credit and will need to come up with collateral. For many of these lenders, the competitive interest rates that banks and credit unions offer won’t be delivered.
People who lose their homes through a power of sale can suffer. It’s a stressful situation filled with anger and frustration for many people and a sense of helplessness.
One of the significant financial impacts of starting over can be squaring up the accounts from a power of sale. If the mortgage lender doesn’t return all of its investment from the sale, a homeowner can be on the hook for the remaining amount.
Homeowners can lose the equity they’ve built up and risk forfeiting future appreciation in the property’s value.
Jonathan Alphonso is a real estate professional with experience supplying money through private loans to stop a power of sale and/or foreclosure. He’s been quoted in the Toronto Star, and you can find more information on his two websites at mortgagebrokerstore.com and powerofsalesontario.ca. You can reach him at 416-499-2122 or by email at ron@powerofsalesontario.ca.
jonathan February 22nd, 2025
