Understanding the Power Of Sale

Navigating a power of sale has different implications for people interested in buying one of these properties. Understanding the process will help a would-be investor make a good decision. There are several implications for these buyers, and due diligence is an important part of making the right choice. Discover the understanding the Power Of Sale.

Understanding the Power of Sale

Lenders have two different ways to recoup the money they’ve lent and any expenses after a borrower defaults on a mortgage: foreclosure and a power of sale. The power of sale is the most commonly used tool. It can recover the lender’s expenses, interest, and principal.

With a power of sale, the lender takes the right to sell the home or property. The homeowner still has ownership, but the legal right to sell the house goes to the lender. 

There are several steps involved: 

• A Notice of Sale Under Mortgage is delivered 15 days after a default. The lender needs to wait 35 days or 40 days if a married couple occupies the property before they take the next steps. 
• There’s a Redemption Period next where the borrower needs to bring the mortgage up to date or pay it off completely. 
• If that passes and nothing is done, a Statement of Claim gets issued. There’s another chance for the borrower called a Statement of Defence. 
• Barring that, the lender signs a default judgment. A Writ of Possession follows, which winds up with the borrower either leaving or being evicted.  

When the property finally gets sold, the proceeds are paid out in a specific order. The former homeowner is at the bottom of the list. The lenders are first to get any money, followed by people with a lien on the house and others.  

The Right of Redemption:

A homeowner has several chances to stop a power of sale and keep their property. They can get a second mortgage through a private lender to stop the process. Beyond the other tools they can leverage, like a Statement of Defense and the Redemption Period, there’s also the Right to Redemption.

This occurs when the homeowner pays the outstanding balance on the mortgage and any associated costs before it gets sold. The Right to Redemption has several advantages, including:

• The fact that it can protect your credit score from further damage. Remember, Equifax reports that 35% of your credit score is payment history. Using the Right of Redemption can prevent further damage to these numbers. 
• The Right of Redemption can also help a borrower avoid accumulating penalties and legal costs as well as fees. For example, there are real estate lawyers fees and real estate agents fees plus others associated with the Power of Sale. The expenses occurred by the lender can accumulate the longer the Power of Sale process goes on.

Of course one of the biggest bonuses to the Right of Redemption is the homeowner gets to keep their property. 

Having a complete overview means considering all of the financial and legal implications. 

Legal and Financial Considerations:

Stopping a Power of Sale is important to avoid the following consequences.

If the Power of Sale goes through, fees are deducted from the final amount the borrower gets. In addition to the money already mentioned for lawyers and real estate agents, the lender’s principal and interest need to be subtracted. 

Lien claimants and execution creditors are next in line to get money owed. Any lenders or individuals with a mortgage on the property get their share back before the borrower.

Legally, even after the property is sold, the borrower can be held liable for any money still owed if there are insufficient funds to cover the costs.

Condition of the Property

If the homeowners get evicted under a power of sale, the lender can sell the house but they need two appraisals of the property. That’s to make sure it sells for market value.

For both the lender and the borrower, the property’s condition is important. Getting the market price is critical, so the house’s condition comes into play. The Appraisal Institute of Canada is a portal where people can find one of these professionals.  They look at a number of different factors including size of a lot, the age of the property and if the home has any energy efficient features.

Location is important because appraisers look at factors like how close the neighbourhood is to amenities like parks and schools and shopping centers. Of course, they look at the roof, walls, windows and doors as well as the foundation and things like fixtures, walls and floorings on the interior.

The power of sale can also influence the market in several ways. 

Impact on the Real Estate Market:

When a power of sale goes through in their midst, there can be downward pressure on neighbourhood property values. These properties can be sold “as is,” and homes close by can see a decrease in the market value. 

On the other hand, these homes present a good investment for investors. Real estate professionals can buy one of these properties at a lower price. However, a market downturn or a high unemployment rate can adversely affect a local market if the Power of Sales are a result of these factors.

Overall, a large number of power of sales in one area can slow a real estate market down. When borrowers don’t get to keep their equity, their chances of reinvesting drop.

Need to Know More About a Power of Sale?

If you’re looking for private loan money from alternative lenders to stop a power of sale or foreclosure, Ron or Jonathan Alfonso are the real estate agents you should contact. They are credible sources used by media outlets like the Toronto Star and the Globe and Mail.

You can contact them at 416-499-2122 or by email at ron@powerofsalesontario.ca. Learn more about them from their websites, including mortgagebrokerstore.com and powerofsalesontario.ca

Jade Filiault September 24th, 2024

blog, Power of Sale