Power of sale and foreclosure: What are the risks?
POWER OF SALE VS FORECLOSURE
Each process is a forced sale of real property, with Power of Sale being common in Ontario, Newfoundland, New Brunswick and PEI. The POS process is much faster, so its main advantage is the procedure does not get tied up in court. The homeowner retains title to the property, and also receives any surplus after the debts and costs are paid from proceeds. (However in some cases, dependent upon negotiations, if the proceeds from the sale are insufficient to cover the debt including expenses the creditor MAY be able to sue for the remaining outstanding balance.) With Power of Sale, there is risk to the creditor to selling below market value, as the homeowner can turn around and sue that creditor for underselling the property. In Power of Sale the homeowner has the right to remedy and put the mortgage in good standing, but in Foreclosure it can be up to the creditor to decide if they wish to offer that solution.
In a case where a home is put into a foreclosure, the lender with a registered lien on the property takes title, and can then sell the property for whatever price they want. In this case, the lender keeps any profit. There is also a possibility the lender can sue the borrower for any shortfall. There is not usually the right to remedy for the homeowner because the title has transferred to the creditor.
CAN SUCH PROPERTIES OFFER BUYERS A GOOD DEAL?
Many people ask me to find bank sales, but they are not a good deal in Canada where lenders are forced to sell the properties for fair market value. And there are procedures in place to ensure that happens! For example, such properties must be listed on the MLS system, they must have undergone appropriate appraisals by qualified, accredited professionals and they must be listed for sale for a reasonable amount of time. I think there are better places to get a deal.
KEEP IN MIND…
In a situation like this the home buyer is buying a home in “as is, where is” condition, meaning there would be no disclosures or warranties. It may even mean that there are no appliances, and those that are there, may or may not work, and that includes the furnace! The negotiations may take quite some time, and will occur only during business hours and not face-to-face. It can be difficult to negotiate a lower price because of the threat of underselling resulting in a law suit brought on by the borrower.
Potential buyers must keep in mind that uncertainties could arise when there are no warranties in place so they should have deep pockets just in case some expensive issues arise. They might not be completely certain if the furnace, or other major systems functions properly. If there should be a mold or pest infestation present at the property, it would be the buyer’s problem to clear up such a problem with no recourse. There are no disclosures, as the bank may never even have seen the property so there will be no mention of prior illegal activities or on-site trauma, or any other damages like a flooded basement. Buying a home that the bank took over is something that novices should avoid. They can be more trouble than they’re worth.
***It’s always best to get legal advice. This blog represents my views and not those of a legal expert.