When a borrower fails to make their mortgage payments, a lender can place a person in power of sale just 15 days after the missed payment. Power of sale is a legal process which lenders can use to recoup their investment. In a power of sale, the lender sells the property on the open market to pay off all debts. Once the property is sold, any excess profits must be given to the homeowner. This is very different from the foreclosure process which gives the lender title to the property and leaves nothing for the homeowner. In Ontario, power of sale is the most commonly used legal process since it is generally faster and incurs fewer fees than foreclosure. In most mortgage contacts in Ontario, there is a clause that states that all fees incurred while administering the mortgage are charged back to the mortgage. This means that the legal bills incurred while under power of sale are charged back to the mortgage. Since these fees can be upwards of $30,000 it is strongly recommended that the homeowner tries to stop the power of sale process as soon as possible.
In the majority of cases, the solution to a power of sale situation involves paying the lender the money they are demanding. How much money, when the money and the source of the money are to be paid depends on several factors. The money needed to stop the power of sale can either be the value of the arrears plus fees or the entire value of the mortgage plus fees. When the homeowner receives a Notice of Sale document, they have up to 40 days to pay the arrears plus fees. If the borrower pays this amount, and if the mortgage term has not expired, the mortgage can be continued normally. After this 40 day period (known as the redemption period) the lender can then request the entire value of the mortgage plus fees. If you don’t have the money on hand, you can seek out a private mortgage lender for financing. Most banks and other traditional lenders cannot approve a loan for a person in power of sale. Many private lenders specialize in high-risk lending and can overlook legal issues or issues with income and credit score.
A mortgage from a private lender can be used to pay off the lender who is threatening the power of sale and stop the legal process. Once the new mortgage is set up, the private lender can negotiate with the existing lenders and pay them directly to stop any legal actions. Most private lenders can approve a mortgage if the Loan to Value (LTV) ratio does not exceed 80%. The LTV ratio on a property is equal to the value of the mortgages secured against the property divided by its appraised value. For an example property valued at $1,000,000 with $800,000 in mortgages, the LTV ratio is equal to 80%. The value of the requested mortgage plus fees is always included when a private lender calculates an LTV ratio for a property. The mortgage fees with a private lender are typically around 2% to 5% of the value of the mortgage. The mortgage can be arranged in different ways, usually either as a first mortgage, a second mortgage, or a blanket mortgage with multiple properties.
Most people are reluctant to sell a house that they have grown attached to, but in many cases, it is the best option. If you are unable to get private lender financing and allow the property to be sold under power of sale, the property will usually not sell for its full value and the fees will reduce any profits from the value. By selling the property yourself you have the ability to control the timeline of the time, the selling price of the property, and you can avoid many of the fees associated with the power of sale. You may have to sell at a discount in order to sell quickly, but lowering the sales price is usually better than allowing the lender to sell it.
Stopping a power of sale by yourself can be overwhelming, and you may find the services of a specialized mortgage broker to be helpful. A mortgage broker that is familiar with the power of sales process can quickly lay out your options and identify the best lenders for your situation. Our team at Mortgage Broker Store has over a decade of experience in stopping power of sales and foreclosures and we can go over your options for free. The first thing we do is take the time to listen to your situation, understand which stage in the power of sale process you are in, and give you a timeline and possible solutions. We can tell you quickly if you can get approved for financing, or if you are better off selling the property. For free advice call our team at 416-499-2122 or email email@example.com.