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Options and Remedies open to the Bank when the owner stops making the mortgage payments

| POS Overview | Bank Options | Legal Aspects| Standard Charge Terms | POS Considerations | Quit Claim | Foreclosure | Power of Sale | Issues | Sale Price | POS Process | POS appropriate? | Clauses in Offer | How will Mark Protect you? | Conclusion | Power of Sale Properties from our company

 

When a borrower is in default of mortgage payments, the mortgagee (this is the institution, bank, lender or person who lent the owner the money to buy the property) has a few options available against the mortgagor (the mortgagor is the borrower or the person who was given the money/loan to purchase the property in the first place). 

From now onwards in this series of articles, I will talk in terms of either a bank and an owner as this is the typical situation that we experience in Ontario.  It's important to understand that when the owner purchases the property the bank lends the money and in return it's the owner who gives the mortgage.  Thus, the mortgage is the document that spells out the terms of the repayment such as monthly payment, amortization, interest rate and such, but also contains options and remedies that the bank may follow in the event that the owner defaults on payments.

The Bank has Three Major Options or Remedies when an owner stops making payments

One option open to the bank is to attempt to obtain title of the property by accepting a Quit Claim Deed from the owner.  The owner may choose this quit claim option, but it's up to the bank whether or not they will accept a quit claim.  Usually the bank will not accept a quit claim, I will talk about the reasons more later.

Second option open to the bank is to initiate a foreclosure action through the courts in order to gain title back to the property.

A third option, and the one most used in Ontario, is to sell the property under Power of Sale  This option is most used in Ontario because not only will the bank attempt to get all their money back through the sale but the bank also retains the right to sue the owner for payment of the outstanding debt.  That's worth stating another way.  Even if the property is sold by the bank under power of sale, if the sale price does not cover all the costs and expenses then the bank still retains the right to sue the owner (even after the sale) for any deficiency.  That's the power of a mortgage that you accept when you need the banks money to buy the property in the first place.

One of the interesting differences between Canada and the United States is very evident in how banks exercise their remedies when an owner is in default.  In the United States many properties end up in foreclosure rather than power of sale.  The reasons for this are as follows.  Banks in the US are mostly privately owned and are very interested in maximizing their profits.  If an owner defaults on mortgage payments, the bank will often initiate foreclosure proceedings through the courts to obtain possession of the property so they can sell it.  Banks and the US in general are a very litigious society and their systems are set up to deal with litigation much quicker than in Canada.  Thus, banks in the US will try to foreclose on properties where the owners are in default in order to have the title passed over to them via the court foreclosure action and then turn around and fix up the property and then try and sell the property for a profit.  Any profit or proceeds from the foreclosure sale over and above the mortgage amount are the banks and thus it's in their interests to profit from the transaction.  

The converse is true in Canada.  The major banks and lenders in Canada are for the most part publicly owned and certainly are government regulated.  Much more regulation than the US, that is a fact.  Banks in Canada do not want the negative press that comes along with removing owners from properties and putting them on the street while they make a profit from the transaction.  The Mortgages Act, common law and legislation in Canada are far different than in the US.  Thus, the banks in Canada have to follow the law and the Mortgages act and the provisions of the clauses contained and allowed to be contained in mortgages and they sell the property under power of sale, while the owner is still residing in the property or not, and still retain the right to sue the owner after the sale.  This allows the banks to exercise their rights while not causing negative press amongst the public and the owners.  It's a winning situation for Canadian banks.

The next section will cover the Legal Aspects of a Power of Sale Property

 


This series of articles about Power of Sale Properties, Foreclosures and advice when you purchase a power of sale property is brought to you by A. Mark Argentino, P.Eng., Broker.  Please understand that these are my personal thoughts and experiences, do not use my information herein as legal advice and always professional seek legal advice on any issue pertaining to real estate and especially Power of Sale.

| POS Overview | Bank Options | Legal Aspects| Standard Charge Terms | POS Considerations | Quit Claim | Foreclosure | Power of Sale | Issues | Sale Price | POS Process | POS appropriate? | Clauses in Offer | How will Mark Protect you? | Conclusion | Power of Sale Properties from our company

 

If you have any questions or require further information about Power of Sale properties or anything to do with real estate, please send me an email

I can assist you with all of the complexities when you purchase or sell your next home.  Please don't hesitate to email me

Thank you,
Mark

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What is a Foreclosure Property?  What is a Power of Sale Property?

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Definition of Foreclosure or Bank Foreclosures

A situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract.

Power of Sale and Tax Sale properties - questions and answers

What is a Power of Sale Property?Power of Sales Properties

When a borrower defaults on a home mortgage, the lender may attempt to recover its losses by selling the property under power of sale.

Definition of Power of Sale:  A clause commonly inserted in a mortgage and deed of trust that grants the creditor or trustee the right and authority, upon default in the payment of the debt, to advertise and sell the property using standard methods such as the MLS or at public auction, without resorting to a court for authorization to do so and without actually taking possession of the property.

Once the creditor is paid out of the net proceeds, the property is transferred by deed to the purchaser, and the surplus, if any, is returned to the previous owner (the debtor).  The debtor is thereby completely divested of any interest in the property and has no subsequent Right of Redemption—recovery of property by paying the mortgage debt in full once title has transferred to the new buyer.

You will often see advertisements about Court Auctions, Pre-Foreclosures, Homeowners in Bankruptcy, HUD Homes, VA Homes, Government homes and similar sounding wording.  In my experience, many of these types of investment property opportunities come out of the US and are not as common here in Ontario.  In our trading area, most of the POS, Tax Sale properties or foreclosure properties are put on the MLS before they reach the point of foreclosure.  The reason for this is that our provincial laws are very strict about the procedure and marketing of a power of sale property and the company or person who is initiating the power of sale must do their best to obtain what is called TRUE market value as opposed to fair market value for the property, otherwise if the property is sold too far under TRUE market value, the owner could sue them for the difference.  Another reason is because power of sale is much less expensive remedy for the lender to attempt to get their money back.

What's an estate sale? What is a Distressed Sale?   Why fix up run-down homes?  Sadly for the previous owner, the answer is simple: Your potential accelerated wealth creation.

Adding value to run-down homes through quick cosmetic rehabs is one of the most powerful leverage tools available to property investors.  Traditional 'buy and hold' strategies are too slow for the investor looking for accelerated wealth creation.  On the other hand, buy and hold strategies show strong price growth over time and seem to work well here in Ontario and the GTA.

Please understand that these are my personal thoughts and experiences, do not use my information herein as legal advice and always professional seek legal advice on any issue pertaining to real estate and especially Power of Sale.

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| POS Overview | Bank Options | Legal Aspects| Standard Charge Terms | POS Considerations | Quit Claim | Foreclosure | Power of Sale | Issues | Sale Price | POS Process | POS appropriate? | Clauses in Offer | How will Mark Protect you? | Conclusion | Power of Sale Properties from our company

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