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What is a "Tax Sale" and how can you buy a Tax Sale Property in Toronto, Mississauga, Oakville and Brampton Ontario?Tax Sale Properties in Ontario

Buying Tax Sale Properties in Ontario, Canada

In some cities and municipalities in Ontario tax sales and tax auctions are a little-known but highly lucrative source of properties for real estate investors.  Some savvy investors can, in fact, buy properties at much less than their actual value through tax sales and tax auctions.

In a nutshell, tax sales and tax sale auctions allow investors the opportunity to obtain real estate property by purchasing the outstanding property taxes that are due to the municipality.  When the buyer pays off these past due taxes this can eventually result in full ownership of the property.  At the very least, buying a tax sale property can allow investors great assurance of some return of their original investment, plus some profit if they investigate the property thoroughly and perform their due diligence.  If you would like to have tax sale properties sent to you, please use this link to have Power of Sale MLS properties delivered to your email

The Mechanics of a property purchase for the outstanding Real Estate Taxes

 

Example of a Luxury Power of Sale Property   Example of a Rural Power of Sale Property   Example of a Mississauga Luxury Property Forecosure Property for Sale   Another type of Power of Sale Property along Mississauga Road in the GTA
You will find that there are many types of the power of sale and foreclosure homes in Mississauga and surrounding areas.  The homes pictured above are similar to many home styles that you will find here in Mississauga and just outside of the GTA.  Let me show you how you can find these types of Power of Sale homes and show you how you can afford to move up to your dream home.  Please email me at info@mississauga4sale.com  Or, you may use this form to sign up to my POS newsletter.

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, some 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.  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.

 

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Definition of a Tax Sale Property

A tax sale is the sale of a property by municipal or government tax authorities in cases where the owner has failed to pay the outstanding property taxes.   The sale can be held by public auction, by public tender or by sealed bids.  Usually, the successful purchaser acquires nearly immediate clear title and immediate possession of the property.  On occasion, the purchaser's right to possession of the property is postponed in order to enable the delinquent taxpayer a specified period of time in which to repay the tax.

There are risks involved, but smart investors who do their research are assured of returns on their investment, depending on the property.  Very few legal investments can beat this guarantee.  The proceeds of the sale are used to pay the unpaid taxes and other expenses that were incurred in listing the property. The balance, if any, is usually given to the delinquent taxpayer.

Occasionally, when taxes due on a property remain unpaid, the tax authority may sell, at public auction, a "lien" obtained against the delinquent taxpayer's property. The successful bidder can subsequently convert this lien into ownership of the property if the sums due are not paid by the delinquent taxpayer within a specified redemption period.

Tax sales occur in every province of Canada. However, the disposition of these properties varies because municipal and provincial laws governing these sales differ from province to province.  In Ontario, the process is as outlined below.

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| Agents and Realtors beware | Power of Sale Properties

What is a Power of Sale Property?

In Ontario when a borrower defaults on a home mortgage, the bank/lender most often attempts to recover its losses by selling the property using the Power of Sale clause contained in the mortgage.  Due to legal fees, foregone interest and other property expenses, the estimated losses to the bank for Power of Sale properties can range from 10 percent to 30 percent of the outstanding loan balances.  There are other variables that can affect the losses or costs when a property is sold via power of sale such as the deterioration of the property and the time it takes to process the paperwork.

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 through any means at it's disposal, usually MLS in Ontario or at public auction, without resorting to a court for authorization to do so.

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 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).

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, some 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.  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.

Read more about Power of Sales and Bank Foreclosure and Distress Property Sales

You will receive a very fast answer from me, thank you and have a great day!  Mark

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.

Typical Process of purchasing a Tax Sale Property in Ontario

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.

Tax Sale Example Procedure

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:

  • there is an easement on the land and building on it is restricted,
  • the property is so small that building on it would not be allowed,
  • the property is land locked and not accessible,
  • the zoning of the land limits its use,
  • the property is in such disrepair that it is not worth the taxes owed, etc. 

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 Power of Sales Propertiestransferring 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.

Use this link to have Power of Sale MLS properties delivered to your email

Main Source for Power of Sale Properties and Foreclosures in Ontario

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!

 (Some area restrictions may apply)

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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