How does the Power of Sale process influence you as a buyer?

March 27, 2015

A power of saleWith the economy turning sour in 2008, most people have heard about Power of Sale and foreclosures. There are some nice stories out there where people share how cheaply they were able to buy a home, especially because the sale was done under Power of Sale. In Ontario, there are no foreclosures. This is a United States only process, perhaps in other areas of Canada. We have Power of Sale (POS), sometimes referred to as a ‘bank sale’ in Ontario.

What does it mean?

A power of sale is a forced sale of a property by a mortgagee (a bank, financial institution or other lender) due to a default of one or more obligations by the mortgagor (owner or borrower) under the mortgage. The obligations include paying principal and interest, paying municipal realty taxes, providing adequate insurance on the buildings, and keeping the property in good repair. When a mortgage goes into default, lenders have several options, and Power of Sale is just one of the legal remedies.

Many people have misconceptions about Power of Sale. They assume that they are always getting the best deal possible. However, there are some factors related to Power of Sale that might be useful to know beforehand. The courts hold the lenders to some rules:

  • Lenders have to get a few (at least two) appraisals in order to determine the price for the property. It has to be a fair price. Essentially this has to be the best price for the property.
  • Power of Sale means that the sale is “as is.” Most people have very little knowledge as to what that means. Basically, it means you are not buying what you see during the showing – you are buying what you receive after you close the deal. This means that you cannot file a formal complaint if you notice the property is in a different condition than you saw it in before. You may not have any appliances, no internal doors, no toilets, all sources of water could be opened, and you might even have leaking throughout the house in the worst-case scenario. If there is vandalism from the owner, you cannot file a complaint.
  • The seller/mortgagee makes no representations or warranties on anything throughout the property.
  • Imagine this, a day before closing, a relative of the owner decides to help save the POS from happening by donating money. Your deal is legally over, null and void. Have you already sold your own property? It does not matter to your buyer; you have to move out from your property while you now have no place to live.
  • Most of the times, you have to buy the property by using a bank’s agreement for purchase and sale of the property. Be aware that these banks have good lawyers on their side and those agreements are in place to protect banks; not to protect you.
  • Sellers/mortgagee usually do not accept conditions in your offer. No conditions.
  • Every Power of Sale has a sad story behind it. A Power of Sale can be very personal for the seller. Are you ready to buy emotionally distressed property?
  • Power of Sale properties in common are selling in a variety of conditions. You cannot predict how much it will cost you at the end.

As a buyer, you might think that Power of Sale is always a good deal. This is not true every time. Many times, in a long term, you will pay more than in a regular deal. This is why it is always important to talk to the professionals.

For more information you can call me right now: 416-825-7888 or email angela@azgta.com

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