How to Protect Yourself from Power of Sale Scams

People going through financial hardships can find themselves in a power of sale situation. It’s essential to know your rights if that’s what you’re going through as a homeowner. It’s equally important to ensure you know what to look for when it comes to common scams in the power of sale process. This blog will tell you what to watch for to spot a fraud.         

Recognizing Fake Power of Sale Notices

For several reasons, it is essential to distinguish real power of sale notices from fraudulent fake ones. First, homeowners must ensure they don’t worsen their financial situation by giving money to a scam.

Knowing the red flags to look for can prevent you from making the wrong decision based on insufficient information. 

• Understanding how genuine notices are sent is the first step in spotting a fraud.  For example, the second step in a power of sale is delivering a Notice of Sale Under Mortgage. This is mailed via prepaid registered letter to everyone described in the agreement as a mortgage or guarantor. These also get mailed to other people interested in the mortgaged property. These letters need to be registered. 
• Familiarizing yourself with the process in the power of sales can help you spot bad actors. As you can imagine, there’s a strict process that a lender needs to follow to evict someone and sell the property. Beyond the Notice of Sale under Mortgage, there’s a Statement of Claim and a Writ of  Possession. These are legal steps and notices that need to be followed. These steps must be followed carefully and laid out under The Mortgages Act. A fake power of sale notice can contain incorrect details on your address and name.   
• Contacting your lender directly is a good way to make sure the process is legitimate.
• Checking the document for a court filing number starting with “CV”. All power of sale documents (except a Notice of Sale) will have a court file number in the top right-hand corner on the first page. You can visit your local courthouse and check if see if a file exists with that court filing number.

Finally, you can spot a bad actor by looking at documents for spelling errors and strange formatting. 

Beware of Predatory Debt Relief Services

A few other red flags can warn a potential lender about a power of sale scam.

Hidden Costs and High Fees 

At the top of the list is a company that asks for large down payments before providing services. This happens before the predatory lender presents a borrower with a formal loan agreement. One of these agreements binds both parties to its terms, so there’s no room to add any hidden or excessive costs.    

A bad actor will also ask for these types of payments through prepaid cards and wire transfers rather than more secure methods through a traditional bank. 

Staying away from predatory debt services also means having a benchmark to gauge high fees. That said, here are a few recent numbers you can use. As of January 2025, many private lenders are charging between 8% and 12% interest fees. Watch out for ongoing service and maintenance fees, which can accumulate. There are other red flags you need to be aware of. 

Urgent  Pressure Tactics 

Scammers use limited-time offers or say that critical deadlines are approaching to create a sense of urgency. 

• Some promise an immediate end to the power of sale process without detailing the proper legal procedures. Some ask for upfront fees to cover all of the legal costs or to speed up the service.
• Some even pray on the emotions of a homeowner in distress.They offer compassion and sympathy but push for quick knee-jerk decisions. Some of the more dishonest ones will even tell a homeowner they’ll be homeless immediately unless they make a quick decision. 

One of the more common pressure tactics used is the quick fix. These scammers say that they can bypass all of the legal channels with unique connections. 

Withholding Fees and Process Info 

Potential borrowers can also protect themselves by looking at reviews and testimonials online. It is important to check the box for reviews that highlight clear communication and simple terms. 

Testimonials should include success stories about how clients resolved their power of sale problems.

Regarding the other website content, look for vague language and terms like “consultation and administrative processing fees” that don’t have specific numbers attached. 

Identifying Phony Lawyers and Notaries in Power of Sale Transactions

Spotting these types of scammers when you’re going through a power of sale is critical.

Check Credentials 

It’s essential to make sure the lawyer you’re considering using is licensed in Ontario. The Law Society of Ontario has an online directory that lists licensed paralegals and lawyers.

Check The Process 

Asking about the process involved from a notary can help you spot a fraudster. For example, a legitimate professional needs valid information from everyone who signs the documents. Watch out for a lawyer or one of these notaries asking for cash payments.

 There’s an official seal or stamp that a notary will use. 

How to Avoid Upfront Fee Scams in Mortgage or Debt Settlements

Start any negotiation with a lender who deals in the power of sale and or foreclosure by demanding a detailed inventory and explanation of costs. Be aware that guaranteed quick fixes that demand money upfront are usually red flags.

 Some bad actors even claim they are part of a government program.  

Understanding the Role of the Lender and Avoiding Misleading Claims

A private lender can help you get the money to stop a power of sale or foreclosure. Avoiding bad actors and scammers means understanding how the process works properly, which includes communicating clearly and transparently at every stage.

• Any lender should be able to detail what happens after the property is sold when a power of sale goes through, including how the money is distributed. The expenses incurred by the lender are at the front of the line, including the lender’s interest and principal, as well as other money. It is important to understand that the next group to get paid are subsequent mortgagees, execution creditors, and lien claimants. If there’s any money left over, it goes to the former homeowner. A private lender also needs to offer a redemption period in the power of sale process. During this period, the borrower is allowed to bring the mortgage back into good standing if it isn’t due or pay off the entire debt.

Private lenders can provide streamlined approval and quick funding. They don’t require a good credit score but rely on the equity and market value of a property. This equity is defined as the part of the property that’s being paid off.

Jonathan Alphonso is a real estate expert and private lender with experience in the power of sale and foreclosure process. Consider getting a free consultation from him today. Jonathan maintains information sites, including mortgagebrokerstore.com and powerofsalesontario.ca. You can reach him at 416-499-2122 or by email at ron@powerofsalesontario.ca.

jonathan January 22nd, 2025

blog, Power of Sale