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9. Determining the Sale Price of the Property - True Value versus Market Value

| 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

 

Determining the asking price and the sale price of a Power of Sale property is exceptionally important to the bank. This page will outline the reasons how market value is determined.
  • the bank must take precautions to sell the property and obtain 'true' market value.  True market value only exists in Power of Sale procedure and means that you can prove it.  The method to prove true market value is by using two appraisals of the property.  It's what the 'experts' say is the value and their analysis and estimate of market value is the value used.  The bank needs two appraisals to defend the sale price achieved and to prove the bank sold the property for true value, not necessarily market value.  Market value is defined as the price a property will sell for given an informed buyer and seller not under any duress.  Read the long definition of Market Value.  Since the parties of a sale under power of sale may be under duress, this is why true market value is utilized.
  • if the property is undersold, the bank is responsible for any deficiency if the owner sues the bank after the sale
  • the bank defends any law suit on the basis of the appraisals of the property
  • two appropriate appraisals are recommended when determining the sale price
  • the asking price is set at 5% to 10% higher than the valuations.  They may take the average of the valuations or take the highest valuation as the benchmark, for "safety" and to be conservative and cautious in the event of a law suit by the owner
  • also, the courts have indicated that there is a human tendency to haggle and this is another reason that the asking price is set 5% - 10% above valuations

The next section deals with how the proceeds of the sale are distributed to the bank, other mortgages on the property and the owner.

 


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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