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2. Legal aspects of a 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

 

In Ontario, even when a bank sells a property under power of sale the owner of the property still retains the Right of Redemption.  This means that the owner still has the right to bring the mortgage back into good standing by making the outstanding payment owing to the bank before the property is sold.  This could create problems with purchasing a power of sale property for purchasers, which I will write about in a later page.

This Right of Redemption is contained in the mortgage as well as under legislation and the Mortgages Act.  Thus, the owner always has the option to retain his property if he can pay the outstanding mortgage arrears to the bank.  This is a 'fair' system and how things operate in Ontario.

When a bank is successful in court and obtains a court ordered foreclosure the title to the property is passed to the bank.  (In POS title remains with the owner and this is why the owner can redeem up to closing.)  Once the bank obtains title through foreclosure, the bank can sell the property at any price that it so wishes and does not have to give any profit or money to the owner, since the owner has transferred title to the bank.

The law in Canada and the agreement of purchase and sale stipulates that all rights of the buyer of a power of sale property are removed under power of sale.  The reason for this is because of the Right of Redemption. 

This paragraph below is what I had written in the past:

Thus a buyer of a POS could be ready, able, willing and ready to close the sale with the bank this Friday, but on Thursday if the owner comes up with the money, then the power of sale is at an end and the purchaser cannot do anything about it.  The purchaser is at risk of this happening up to the closing of the sale.  The bank is forced to have the purchaser removed of all rights, because the law states the owner has precedence and can redeem. 

Update March 15, 2015: A real estate agent in Ottawa contacted me and told me that the law had changed and the Right of Redemption ceases once the bank has entered into a 'firm' agreement of purchase and sale.  I did some research and reading on the internet and I found one site in particular that addressed this specific issue, written by a lawyer, and this lawyer states that the Right of Redemption ends once the agreement of purchase and sale with the new buyer is 'firm'.  Read the full article written by this lawyer at this page.  Thus, as the lawyer states, once you have received notice of Power of Sale by your lender, you better hurry up and bring your mortgage into good standing if you plan on keeping your property.

I will talk about options open to the buyer and strategies for clauses in the offer in a later section of these articles.

The next section will cover the Standard Set of Charge Terms that are contained in a mortgage

 


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

You may read more about Power of Sale, Bank Sales and Foreclosure Properties

or go back to list of Real Estate Helpful Articles

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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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