Don’t be fooled by bad information. Understanding how this process works and your rights and obligations can help you avoid power of sale myths that could cost you everything.
What Is Power of Sale?
A power of sale is the most common legal tool lenders use when a borrower defaults on a mortgage agreement. It’s faster and more affordable than a foreclosure, partially because the lender doesn’t need court approval to begin.
Missing mortgage payments more often than not start a power of sale process. However, breaching a covenant of the mortgage agreement is another way to default. Those breaches can include not paying the taxes, damaging the property on purpose, not insuring it, or using it for illegal activities.
After A Default
The lender can issue a Notice of Sale 15 days after a default. When the process goes through to the end, a lender can list the property and sell it after evicting the homeowners.
Suppose you find yourself dealing with a power of sale. In that case, there are remedies, including a Redemption Period, whereby the borrower can pay off associated costs and the arrears to stop the process. This period is generally 35 days.
Borrowers also have other rights.
Myth: You Have No Rights During a Power of Sale
A power of sale is a legal process, and the borrower has rights that include:
- The right to any money left over after the sale and everyone in line has been paid.
- The borrower can pay the entire mortgage off and reinstate it, or bring it back into good standing, at any time before the place is sold.
- The lender needs to send the delinquent borrower a Notice of Sale. This formal document must be delivered 15 days after a default.
Borrowers need to note that the lender must sell the property at a fair market value, which includes an appraisal. They can challenge the numbers legally if the property is undervalued. Borrowers have the right to legal representation throughout the process. They can sell the property at any time during the power of sale, pay off what they owe in the mortgage, and keep the rest of the equity.
Myth: The Lender Wants to Take Your Home
Lenders want to resolve a power of sale without selling the property. They aren’t in the business of selling and managing real estate. They want to earn interest on the loans they supply to borrowers to buy homes and other property types.
Lender Risk
The power of sale carries a certain amount of risk for the lender. Sometimes, they can’t recoup all of their money when they sell a property. At that point, one option is to file a Writ of Execution to get the rest of it through the local sheriff.
Finally, the lender must deal with realtor commissions, legal fees, and other costs and delays when enforcing a power of sale.
They would much rather have the lender stay in good standing, so some offer payment plans and refinancing options.
Myth: You Can Ignore the Process Until the Last Minute
The truth is that a delinquent borrower needs to stay on top of the process to stop it in time before the property is sold. These people must remember that the process starts just 15 days after the mortgage agreement has been breached. That’s when the Notice of sale can be sent out.
The Statement of Claim
After that, if a borrower does nothing, the lender needs to wait 35 days, or 40 days if the house is occupied by married people, before proceeding to the next step, the Statement of Claim.
Following that is a default judgment and a court motion in which the lender asks for a Writ of Possession. That’s followed up by a date to evict the homeowner and their family.
Legal Disputes?
The whole process of a Power of Sale can take 3 to 6 months. Delays can happen because of legal disputes or a slow market. However, a power of sale is faster than a foreclosure because no court approval is required for it.
Myth: Power of Sale Means Immediate Eviction
The power of sale is a process that doesn’t immediately evict someone who has breached a mortgage contract. There are legal steps outlined above and even a Redemption Period that can stop the process completely.
The borrower needs to come up with the money during this period for:
- The lender’s administrative costs and legal fees.
- Any interest that was accrued on the mortgage.
- The missed mortgage payments are in arrears.
In short, if the mortgage isn’t due or paid off entirely, it needs to be brought back into good standing. Even though the processes have started, the borrower still has full ownership of the property, and they can reinstate the mortgage, refinance, or sell the property themselves.
There are other ways to stop this process.
How to Stop a Power of Sale
Connecting with a private lender is another way to stop this situation quickly. A short-term, second private mortgage can give you the money to prevent a power of sale.
Keep in mind that these mortgages last for one year, and the interest-only payments are a stopgap measure. A private lender has a streamlined application process. It relies more on the equity that you have in your property. Bank loans and more traditional credit unions have strict requirements. Those include stringent income and administrative differences from a private loan.
Seeking Professional Help
When you find yourself in the middle of a power of sale, you want to be sure you work with a company with experience navigating the process.
- Look for one that can guide you through every step, from the default to what happens if the property gets sold.
- Make sure they offer support and legal resources tailored to your situation.
It’s important to understand your rights and obligations as a homeowner. Jonathan Alphonso is a real estate expert and private lender who can help supply the money to stop a power of sale process. Contact him at 416-499-2122 or by email at ron@powerofsalesontario.ca
