Power of Sale Properties
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).
Definition of an Estate Sale
The sale of property left by a person at his or her death. An estate auction can involve the sale of personal and/or real property
What's a Fixer-Upper property?
Many buyers when asked about the type of house they are looking for and many will reply "We are looking for something we can fix up and live in or resell at a profit. We like the idea of gaining some quick money from our sweat equity." This is what we would call the classic "fixer-upper" home.
Unfortunately, there is a bit of fantasy in the notion of the fixer upper.
- First of all, there are many more fixer-upper buyers than there are fixer-upper properties.
- Second, the current thinking in many minds is that anyone can make a killing in the Real Estate market, which is not always the case. You must exercise extreme caution when buying a fixer upper.
- Third, many buyers totally under-estimate both the cost and the time involved in fixer-uppers, severely impacting (and in some cases destroying) the profit potential. Unless you are fully prepared to deal with the realities of fixer-uppers rather than the fantasies, it probably is a good idea to look elsewhere for a home.
- Fourth, there are hundreds if not thousands of other people just like you looking for that fixer upper and great deal so that they can make some quick money. This does not mean that there isn't equity to be gained (or profit to be made) by purchasing the RIGHT property at the RIGHT price. The important point is to understand that there are several factors that will make the difference between winning and losing in such a transaction.
Your thinking for this fixer upper investment
The first factor that must be understood is that it isn't going to be easy. The only people who think that finding, buying, fixing and selling a home is an easy task are those who have never done it. Those with any experience (even if only once) will tell you that it rarely is as simple as it appears. In general, it is best to assume that repairs will cost twice what you estimated, take double the amount of time and,when finished, the house will be worth less than expected. If you keep that in the forefront of your thinking, the chances of being burned are much less.
Definition of Foreclosure:
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.
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