The pandemic has not only been a health crisis in our country, but for many, it has been an economic crisis as well. Many Canadians have lost their jobs or business and, as a result, are racking up the debt and even having difficulty making their monthly bill payments. If you are finding yourself in this situation and have been having trouble keeping up with your mortgage payments, you may be facing something called a Power of Sale.
This means that you are now in a situation in which your mortgage lender is demanding that you bring your mortgage back into good standing – or they will apply to the courts to be given the authority to sell your home.
What is a Power of Sale?
A Power of Sale is a legal tool meant to protect lenders from borrowers who cannot make their mortgage payments. It is a way for the lender to recoup money that is owed to them when the borrower becomes unwilling or unable to make their payments.
For a Power of Sale to be legal, the lender must go through a very specific process that is outlined in The Mortgage Act, 1990. The process starts with the lender notifying the borrower that they are in arrears and it ends when the borrower pays what is owed (including legal and admin fees) or when the lender takes possession of the property and sells it.
Power of Sale is often confused with foreclosure, but there are a few differences – the most notable, that with a Power of Sale, the lender doesn’t get the title to the property. So when they sell the property, any proceeds from the sale – after the lender and other creditors recover what is owed to them – go to the borrower.
This means that the lender is legally required to sell the home at a fair market value and may not discount it simply to get a quick sale.
What can borrowers do if they are facing a Power of Sale?
Homeowners can stop a Power of Sale right up until the closing day on the property by bringing their mortgage back into good standing.
There are a few ways that they can do this. Assuming the homeowner does not simply have the money to make the payment in their bank account, the homeowner may refinance their mortgage, borrow from their home equity or get a special unsecured loan called a Stop Power of Sale loan.
The right strategy should be decided on a case-by-case basis, and it is recommended that a homeowner who is facing Power of Sale sit down with an experienced mortgage broker to determine the right strategy for them.
Can a buyer get a deal by purchasing a home that is under Power of Sale?
If you are considering purchasing a home that is under Power of Sale, you need to be aware of both the advantages and pitfalls. While you may be less likely to get into a bidding war with other buyers, don’t expect any big discounts – the lender is legally required to sell for a fair market value.
You should also keep in mind that home being sold under Power of Sale is usually being sold “as is” so it’s important to get a home inspection to make sure you don’t get any unpleasant surprises. Additionally, you need to go in knowing that if at any point the homeowner is able to bring their mortgage back into good standing, the sale will be stopped – and this can happen right up until the closing day.
Whether you are facing a Power of Sale and wish to stop it, or whether you are considering buying a Power of Sale property, it is critical that you work with a mortgage broker or real estate professional that has experience in this area.
These professionals are there to guide you and to help you achieve the best possible outcome.