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5. Options open to Bank when an Owner is in default

| 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

 

There are 3 options open to the bank and/or owner when an owner is in default.  They are:

  1. Quit Claim Deed
  2. Foreclosure and
  3. Power of Sale.

Option 1 - Quit Claim Deed

Briefly a quit claim is a situation where the owner of a property signs the deed over to the bank in exchange for release from the mortgage

The bank does NOT have to accept a quit claim deed and in the case where an owner cannot make the mortgage payments, selling under POS may be a better option for the bank.

The advantages of a quit claim to the Bank is that the bank (mortgagee) becomes the owner and no court action for possession is necessary.

The disadvantages to the bank are that the release stops the bank from suing the owner for any shortfall.

The procedure for a quit claim deed is simple, an exchange of the deed in exchange for release of the obligation to pay.

The bank received the rights of ownership including the rights to give away the title by reselling the property.

Why would an owner want to initiate a quit claim deed and that are the rights of the owner?

  • the motivation of the owner may be at the root of the reason and there could be environmental issues with the property that the owner does not want to deal with, redevelopment or other issues that cause the owner to want to
  • you must calculate the Net Value of the property, this is the appraised value of the property less any debt and is the net value high enough to pay out the debt, if not the bank may not accept a quit claim
  • is the Net Value enough to cover the outstanding balance of the mortgage?  If yes, then the remedy is appropriate for the bank.  If no, the bank must look into the amount of the shortfall and assess the financial strength of the owner and if the owners situation looks very grim and financial outlook very poor then the bank may consider accepting the quit claim deed
  • you have to assess whether the better option is to pursue power of sale remedy, which allows the bank to sue for any shortfall
  • if the owner is what lawyers refer to as 'judgment proof' (meaning that the owner has no assets, not making much income and is a poor risk) then a quit claim may be the better option for the bank as they obtain ownership and possession of the property immediately

Is Quit Claim Deed the best method and the answer is, it depends. and may be good for the owner if the bank is willing.

The next section will teach you about another of the options open to the bank, that is Foreclosure

 


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

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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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