The real estate taxes assessed by the local taxing authority have the primary lien on the property. This primary lien means that they are the first to be paid from any sale of the property. This lien also allows the taxing authority—or their assigned agent—to foreclose on the property if the property taxes are not paid and sell the property in an attempt to recoup the outstanding property taxes owed.
Tenders must be submitted in the prescribed form and must be accompanied by a deposit in the form of a money order or of a bank draft or cheque certified by a bank or trust corporation payable to the municipality (or board) and representing at least 20 per cent of the tender amount.
Except as follows, the municipality that is selling the property would make no representation regarding the title to or any other matters relating to the land(s) to be sold. Responsibility for ascertaining these matters rests with the potential purchasers.
Sales are governed by the Municipal Act, 2001 and the Municipal Tax Sales Rules made under that Act. The successful purchaser will be required to pay the amount tendered plus accumulated taxes and the relevant land transfer tax. Typically, the municipality has no obligation to provide vacant possession to the successful purchaser. In some rare cases, G.S.T. may be payable by successful purchaser.
Note that if the Municipality or area, for example, were to foreclose on a property, all of the mortgages on that property would be automatically cleared from the title. This is why mortgage lenders insist on verifying that the taxes are paid.
However, most local governments do not want to deal with the hassle of foreclosures. So, instead, they opt to sell the tax defaults. By selling the (past-due) tax certificates, the government recoups its tax revenues immediately.
The foregoing analysis works very well in many areas outside of the GTA and in some counties and states in the USA. The process of a Municipality taking over a property and eventually selling it here in Ontario is a little more complicated than this example.
Before there is a sale of property for tax arrears the property owner is given every opportunity to pay the taxes in full in order to keep possession of their property. This right has been supported by the Ontario Court of Appeal.
As the City or Municipality is only interested in recovering the debt outstanding, they typically adhere to the principal that the owner is given all chances to bring the taxes up to date and where an arrangement to pay has been made between the owner and the city, the tax sale of an advertised property will be cancelled.
Sometimes a tax sale does not occur, nobody bids on a property and the property becomes vested with the city or Municipality. Reasons for this can be where there are no bids during the tax sale and the property becomes vested with the city. Some of the reasons for this include but are not limited to:
In these situations with the exception of the last example the city or municipality may try and identify any restrictions so that bidders are fully aware before they bid and commit their 20% deposit which will be forfeited should the bidder not close the sale.
Where the tax sale has no bids, the City has one year from a failed tax sale to decide whether the City wants to vest the property to itself. If there are any concerns as to contamination or the safety of a building structure then the city will analyze the available data to decide if the city should assume any risk in putting the property in the City's name.
Where it is determined that the City will not vest the property they may issue a Request for Offers and attempt to spur development by accepting much less than the taxes owed while limiting our risk of ownership to a very short period. Examples of these types of properties are where the taxes owed are much more than the assessed value. The City can also choose to do nothing with the property and then start the whole tax process again on that property.
Where a property did get sold at the tax sale the price bid for that property must be at least the taxes owing (minimum bid). Where the bid was for more than the taxes owing the balance is paid into Provincial Court and any other creditors that were registered on title can then make a claim for the excess funds.
On properties for which there is no bid and it is indicated that the property is vested to the City, usually the Real Estate Department becomes responsible for the property. They will work with transferring title to any adjoining owners, transferring title to another government agency (i.e. conservation, authority), the city may potentially require the property for its own use, or the Real Estate Department may market the property and attempt to then get the best price available for the property. Often the city or municipality will market the property on the MLS. These properties are then available to the general public through agents like myself. I can send you a list of foreclosure properties.
As you can see, the process can become quite complicated and may take many months or years to conclude.
Often, real estate properties will first end up as a power of sale and the lender sells the property before it becomes a tax sale property. Most tax sale properties are vacant lands or if they have a building on it, the building is usually in very poor condition and does not add much if any value to the property.
Any outstanding taxes are paid first and foremost, even before the mortgage, but it's usually the lender that sells the properties here in Ontario. Municipalities may sell when it's only bare raw land and there may or may not be any mortgages on the property.
Typically you have to venture outside the GTA to find such tax sale properties. I did see one tax sale property last year in Milton and a few in the Niagara region. Another problem with tax sale properties are that they may be landlocked, they may literally be swamp land, they may not have land access, they may contain hazardous materials or they may have huge tax debt that is near to the actual value of the property, all of which make the purchase of the tax sale property not a great investment. You must do your homework and due diligence before you consider purchasing such a property.
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All of the sources above may lead you to find the occasional property, but in Ontario, Power of Sale properties must be marketed and an attempt must be made to sell the property for market value. Reason for this is that the homeowner can attempt to recoup the amount they feel the property was sold for less than market value. Again, in reality, this would seldom happen as the homeowner who walks away from a property usually has very little extra money to begin with, let alone the money and resources to sue a large bank or trust company who held the mortgage. Thus, your main source of Power of Sale Properties is through:
Where to start looking for distress sales?
In Ontario, even once power of sale has begun and the homeowner is removed from the home, the homeowner has the ability to bring the mortgage up to date and pay all interest and fees owing and move back into the property. This means that they can move back into the property and stop a sale of the property up until very near to the closing date. The reality is that once a homeowner is removed from the property (or chooses to leave) they rarely come up with the funds necessary to get their property back and the sale proceeds under power of sale.
Remember that the listing real estate agent’s job is to get the best price for a property that is for sale, whether it's a power of sale or foreclosure property. Therefore, they might not be willing or able to promote and deal with discounted power of sale opportunities with you, which conflicts with one of the directives. Thus, you will benefit from using the services of a selling agent such as myself to help you through all the complexities of purchasing a power of sale property and to represent your best interests for your purchase. The listing agent is working for the seller. I must help you get the property at the best price and terms for you. Let's begin!
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You may wish to learn more and read a very detailed analysis of Power of Sale Properties
Power of Sale and Tax Sale properties - questions and answers
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