A power of sale is a condition in most mortgage terms that authorizes a mortgage lender to sell a property in the event of payment default by the buyer in order to cover the mortgage debt.
In Canada, homebuyers generally take out a mortgage from a lender to purchase their homes. This money is loaned on the premise that it will be paid back monthly.
But what happens if a homeowner cannot afford to pay their mortgage? In this article, we’ll discuss what can happen if you default on your mortgage and learn more about the Power of Sale in Canada.
What is a Power of Sale?
If you default on your mortgage for a certain period of time, whoever gave you the mortgage has the right to either a) sue you for your promise to pay, or b) exercise their Power of Sale. If they choose to exercise their Power of Sale, this means that they have the right to seize your home and sell it.
Power of Sales can come about very quickly. After only 15 days of defaulting on your mortgage, the lender has the right to send you a notice to sell your home.
After another 35 days, they have the right to seize and sell. This means that within only a short 50 days of defaulting on your mortgage, your home could be seized and sold by your mortgage loaner.
What is a Foreclosure?
People often confuse Power of Sale with Foreclosure. Foreclosure is another action that a mortgage loaner can take if you default on your mortgage. When a property is foreclosed, the lender takes ownership of the title.
Foreclosure VS Power of Sale
At first glance, foreclosure and power of sale look very similar. In both Foreclosure and Power of Sale the mortgage loaner has the right to sell the property. The main difference is where the profits of the sale go.
When a mortgage loaner chooses power of sale, they have the right to sell the property at market value and use money from the sale to pay off any owing debts. The rest of the profits are then transferred to the property owner.
In foreclosure, on the other hand, the mortgage lender takes over the title and is entitled to obtain all profits from the sale of the home. In this case, the property owner receives nothing.
Why would anyone choose Power of Sale?
It’s clear to see that any mortgage lender would benefit more from a foreclosure. After all, they get the entire profits of the property as opposed to just a small portion.
But most mortgage lenders choose Power of Sale over Foreclosure – and the reason is simple. Foreclosures are a lot more complex and require lengthy court proceedings that most people would rather avoid.
In fact, most mortgage lenders would rather avoid Power of Sales and Foreclosures altogether. Paying your mortgage is the best result for both them and you.
I can’t pay my Mortgage, what should I do?
Hard times fall upon us, and sometimes it can be difficult to make payments on your mortgage. If your mortgage is in arrears and you are worried that your loaner will take action, the best thing you can do is speak with a Licenced Insolvency Trustee and a Mortgage broker.
A mortgage broker can help you to refinance your loans, while a Licenced Insolvency Trustee can help you find solutions to get out of debt.
Is it a good idea to buy power of sale homes?
You can find some great deals if you purchase Power of Sale homes, but you also need to be aware of the risks. When mortgage lenders take over properties to sell, they often don’t complete home inspections before they do.
In such a case, you could end up discovering underlying problems after you’ve signed the deal. As a potential home buyer, you should always do your diligence and ask for a home inspection as part of the conditions of buying a power of sale home.
In addition, you need to be aware of the “Power of Redemption”. This means that if the owner of the property makes all mortgage payments while deals are being negotiated, they have the right to take back the property. Until the deal is closed, no power of sale is final.
In conclusion, the only way to completely avoid a Power of Sale on your home is to pay your mortgage. If you are having difficulty, speak to a professional who can help you find solutions to your debt.