Power of Sale: What You Need to Know

Many Canadians today are in economic crisis. Some have lost their livelihoods during the pandemic, and many who were struggling with debt prior to COVID, are in an even more dire situation today.

This is making the Power of Sales more common.

If you have been unable to keep up with your mortgage payments, perhaps you are facing a Power of Sale and fear that you will lose your home as a result.

Or if you are in a better financial situation, you may be considering buying a home that is under Power of Sale. 

Either way, there are certain things that you should understand about the Power of Sale before you proceed any further. 

What is a Power of Sale? 

Power of Sale is a process by which a lender can recover their money should a mortgage borrow become unable to make their payments. 

The Mortgage Act, 1990 covers the process of Power of Sale and lays down very strict steps that a lender may take and when they may take them.

Before a lender may initiate Power of Sale, they must first notify the borrower that they are in arrears.

After 15 days – if the borrower hasn’t paid – the lender may issue a Notice of Sale.

At this point, the clock is ticking for the homeowner.

They must either bring their mortgage back into good standing or eventually, the lender will be given authority by the courts to evict them and sell their home. 

Even if the lender does sell the home, however, they have certain legal obligations.

The home must be sold at fair market value or the homeowner can sue.

Proceeds from the sale go first to the lender to allow them to recover their money (including any legal or admin fees), then to any additional creditors, and finally if there is any money left over, to the borrower. 

What can borrowers do if they are facing a Power of Sale?

No one wants to lose their home to a Power of Sale. Fortunately, if you are facing Power of Sale, there are ways in which you can stop it. 

Usually, the best option for stopping a Power of Sale is to bring your mortgage back into good standing – and this may be done right up until the closing day of the sale.

Most homeowners will have to take on some form of loan to do this – either mortgage refinancing, a second mortgage, or a special type of unsecured loan called a Stop Power of Sale.

Talking to an experienced mortgage broker is the best way to determine the right type of loan for you. 

If you cannot bring your mortgage back into good standing, the other option is to sell your home before the lender does.

This may allow you to get a better price for your home. 

Can a buyer get a deal by purchasing a home that is under Power of Sale? 

If you are purchasing a Power of Sale home, you may be able to get a better deal by virtue of the fact that you may avoid bidding wars, but don’t expect any deep discounts as the lender is still legally obligated to sell the home at a fair market value. 

Furthermore, be aware that Power of Sale homes are usually sold “as is” – so if you wish to avoid unpleasant surprises after the sale, it is highly recommended that you have the home inspected before you agree to purchase. 

Finally, you will need to realize that the homeowner will be able to stop the sale at any point – right up until closing day – if they are able to bring their mortgage back into good standing. 

Final thoughts

If you are facing a Power of Sale, it is possible to stop it but it is important that you work with a mortgage broker or real estate professional who is experienced in this area.

Likewise, if you are considering purchasing a Power of Sale home, you should have experienced professionals on your side to assist you. 

Tags: Power of Sale

Category: Housing