Many buyers think they want to buy a Power of Sale property being sold by a bank because it’s such a good deal and they will save thousands. Although this may be the case in some circumstances, there are many risks involved which buyers don’t fully understand.
Power of Sale properties are sold for current market value and as a buyer you are assuming the highest amount of risk when buying this type of home.
In Ontario, once a mortgage has been in default for a minimum of 15 days, the lender may issue a power of sale notice. This is like a warning and gives the owner 35 days to put the mortgage into good standing. If the owner fails to pay the arrears, the lender has the right to list and sell the property. During the 35 days, the lender is not permitted to take any steps to sell the property, including having the house appraised, sign any listing agreement or advertise the property for sale.
Lenders have a legal obligation to act reasonably in obtaining a fair price for the property. The law indicates that on the date the lender signs an unconditional agreement of purchase and sale with a buyer, the original borrower has no further legal right to pay off his mortgage. But the borrower’s rights may be extended by the lender in certain circumstances.
When buying a Power of Sale, you will face many challenges, the first being that the property is sold As Is which means no warranty plus the bank will not guarantee you will find the property in the same shape on closing as when you first viewed it. Other obstacles include the borrowers right to remedy prior to the closing (although many lawyers will argue once the property has sold the borrower loses his right to remedy) the lender may allow the borrower to put the mortgage in good standing right up until the last day before closing.
So if you’re the buyer waiting to close and you’ve sold your current home you will left out on the street. Another challenge you will face and this applies only of the property is tenanted that the bank will not deal with the eviction or the lease of the tenant, so again both the buyer and tenant are left in limbo. Now knowing all this, does it still make sense to assume all of these risks especially when you are potentially paying full market value for the home? That's the question you must ask yourself.
When my clients are considering purchasing a power of sale property, I work closely with them and their lawyer to evaluate the deal very carefully, including the fine print. That is because these deals can be more complicated than the typical sale of a home.
Still want to buy a Power of Sale property? Let me know. I know how to find them.
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