What is a Power of Sale?

Definitions of Power of Sale on the Web:

A clause in a mortgage that permits the mortgagee to sell the property which secures the mortgage loan in the event that mortgage payments are not made in a timely manner.

The right of a mortgagee to force the sale of the property without judicial proceedings should default occur.

A legal remedy of a mortgagee through which a mortgaged property is sold to repay the mortgage debt.

Buying a Power of Sale Property
Article kindly provided by Bernie Jankowski with his permission.
Barrister, Solicitor & Notary Public
www.bjankowski.com

Are you considering purchasing a home being sold by power of sale? If so, you should know how such a purchase is different from most real estate purchases. This article will deal with the reason why you may have unrealistic expectations about price, and will point out some of the perils of such a purchase.

The normal real estate sale involves the owner of a property who sells to a purchaser. In a sale by power of sale it is not the owner who is selling the property but rather the lender. The situation arises when a homeowner has a mortgage loan and defaults on payment. In this situation the lender has the right to proceed to sell the property providing the proper procedure is followed.

A lender proceeding pursuant to a power of sale must follow strict rules. There must be default in the loan and the ability for the owner to correct the default. A notice must be sent to the owner and anyone else who has an interest in the property, which states the amount due to the lender. The notice will also state a date by which the owner must pay the arrears and costs. During the notice period the lender is not allowed to take any action with respect to the property, but when the notice period passes the property can be sold.

A lender, who sells a property for less than the outstanding debt, may sue the owner of the property for the shortfall. Likewise, the owner of the property may sue the lender if they can prove that the sale was made for less than the value of the property.

So the lender has an obligation to sell the property for the fair value. The lender will be careful that the property is not sold for much less than this amount because they will either lose money, or open themselves up to a lawsuit from the owner. In other words you may find a good price for a property but the chances of this are the same as with an owner sold property.

There are also some downsides. Most lenders require their own amendments to the agreement, which include such matters as the state of the property and the redemption by the owner. The lender will for instance give no warranties with respect to the state of the property or even the ownership of any chattels on the property. It therefore goes without saying that you will not get any assurances that the appliances work or that the property contains no contaminants.

If you have any legal questions about the contract you should speak with your lawyer. Remember that no one but your lawyer is qualified to give you legal advice.

Bernie Jankowski practices real estate, corporate and estates law in Barrie, Ontario. If you have questions about this article or real estate law in general, write to That's The Law, c/o Toronto Sun, 333 King St. E., Toronto, M5A 3X5.

Contact Information:

Bernie Jankowski
Barrister, Solicitor & Notary Public
48 Alliance Blvd., Suite B1,
Barrie, Ontario, Canada,
L4M 5K3
Phone: (705) 735-6975
Facsimile: (705) 735-4977
Website: www.bjankowski.com