Help – the bank wants to sell my home under a Power of Sale. Is there any way to keep my house and/or my credit rating?

A Power of Sale is where a bank or lender has evicted the occupants of a home for failing to pay off their mortgage (often referred to as “defaulting” on their mortgage payments) and are now taking steps to sell the property. The lender is under an obligation to sell the property at fair market value. Any proceeds of sale over and above the debt, the late payment interest, legal fees etc. go back to the homeowner, so the lender doesn’t make anything on a Power of Sale beyond what they are entitled to receive under the mortgage.

A Power of Sale is different from a foreclosure, although both are legal processes arising from a default in the mortgage. In a foreclosure, the mortgage-holder actually takes title to the property, rather than simply having the right to sell it. Because of this distinction, the homeowner is not entitled to any proceeds of sale.

So what impact does a Power of Sale have on a buyer?

Well, there are never any warranties by the lender, so the Buyer really has to do their due diligence. They need to verify taxes, lot size, have a home inspection etc. to make sure there are no nasty surprises. There are a lot of clauses in the agreement the lender will want the prospective purchaser to sign, so the buyer will want to insert a clause allowing their lawyer time to go over it and give them advice. Often the lender will require a lengthy period of time themselves to review any offer submitted by a Buyer before they decide whether to accept it or not. Sometimes they want a hefty deposit up front too.

These properties are often not in good shape. Sometimes they have no appliances. They may be dirty or bug-infested, and in desperate need of repairs. Because of the obligation not to sell them below fair market value, they can be over-priced and get quite stale-dated. Before the prices come down to the point where a buyer is interested, the lender can be carrying the properties for quite a while, so it’s not an ideal situation for them either.

The homeowner has what is called a right of redemption right up to the point of sale, which means the buyer can have an accepted offer, pay the deposit, pay for their inspections and lose the property if the homeowner is able to come up with the money to make the overdue mortgage payments and costs. That’s not usually a big risk, but it still adds uncertainty to the purchase. Because of all of this, it can take a while to sell a home under a Power of Sale: they don’t show well, the prices may be higher than market value, and there is a crazy amount of due diligence required on the part of a buyer.

From the homeowner’s perspective, then, it’s always better to try to refinance the property before it hits the Power of Sale (or foreclosure) stage. If that’s not possible, it’s best to sell before things get too far out of hand.

I’m always surprised to see Power of Sale listings in a hot market like the one we are in now in Ottawa. This is because if there is enough equity left in the home to cover the mortage plus late payments and penalties and realtor commissions and legal fees, we can get that home sold quickly for top dollar before it’s too late. And we can often find a buyer willing to take immediate possession.

Bottom line? If you are having problems, call a realtor. We’ll refer you to a mortgage broker to see what they can do for you in terms of re-financing, in case it’s possible for you to keep your home, and we’ll let you know if we can help you sell your house. Bring your mortgage paperwork with you: this is one where we really need to know the numbers before we can offer any help: we can’t work for free, so there has to be enough money to pay our commissions. However, in a market that has gone up on average 8.7% this year and is still rising, there may be more equity in your home than you thought.

 

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