Foreclosures

A foreclosure refers to the lengthy and costly legal process where a lender seizes property from an owner who has stopped making payments to them. Essentially, the lender sues the owner for title of the property, and the owner would then have no entitlement to any future profits from the sale of the property once title is given to the lender.  This process is quite common in the United States, but not in Canada. 

Power Of Sales

When an owner is in default with the lender, a much more practiced process in Canada is a power of sale. In this case, the lender seizes the possession of the property and puts the property up for sale. The lender has an obligation to list the property at fair market value, and the owner still has rights to any remaining profits after repaying the lender and any other incurred fees from the sale of the property. This process is much quicker than a foreclosure, where it could be completed in 6 months as opposed to over a year. The owner can stop the process of both a power of sale or a foreclosure by paying the lender the amount requested by the lender.

Purchasing a home under a power of sale

When purchasing a home under power of sale there are added terms and conditions on the agreement of purchase and sale. Every financial institution has their own schedule “A” to be attached to the agreement, and will not usually accept any changes to their terms. For example, the lender typically requests that the buyer accept that the closing date may be delayed up to 60 days to allow for any legal issues that may arise. Another term that is typically found in the schedule A is that the owner has a right of redemption. This means that if the seller is able to make the required payments to the lender before the closing of the sale, the owner has the right to reclaim the property.

It should also be noted that the sale is declared ‘as is, where is’. In other words, the lender makes no guarantees that anything works in the house as they do not have adequate knowledge about the condition of the property. Keep in mind that a homeowner losing their home may not necessarily feel motivated to maintain the home, so the home should be properly inspected by the appropriate professionals. Another point to keep in mind is that the lender does not have ownership of the appliances, so you will be purchasing the home without any appliances. 

A couple other pointers to consider when purchasing a power of sale home is to seek guidance from a lawyer to make sure you are aware of any other potential issues, such as liens on the property. As the lender is usually a bank or financial institution, the sale can take much longer than other property sales as business has to happen during regular business hours. All in all, although buying a power of sale home poses more steps then other sales and requires increased awareness of terms and conditions, it can still be a successful purchase if all the necessary precautions are taken.

Written by:

Christine Tetstall Real Estate Agent Sutton Group Associate Realty Inc.       416 966 0300 358 Davenport Road, Toronto, ON