Power of sales and foreclosures usually happen when an owner is no longer making their mortgage payments and the lender is selling the property to recover the amount owing on the existing mortgage.
The process that is most frequently found in Ontario is the Power of Sale and not a Foreclosure. The main reason being that Power of Sales can be completed much faster than a Foreclosure. Power of Sales can be completed in most cases in 3-4 months, where as Foreclosures can take up to a year to complete. Banks and lenders like the shorter process as it permits them to get bad loans off their books faster and if there is any shortfall, they can immediately sue the original borrower for the deficiency.
Lenders are supposed to try and get fair market value for the property that is being sold, so in saying that, it’s not automatic that you will be able to purchase the property at a substantial discount. It’s wise to seek the expertise of a professional to make sure you know the value of the property before making an offer.
Power of Sale properties will often contain special clauses in the Agreement of Purchase and Sale that are of importance to the buyer. For example, all appliances will be sold on an “as is” basis, with no warranty. This means if they are not working on the date of closing, unfortunately you would be out of luck. No warranty will be given with respect to the measurements of rooms, lot size. There is no guarantee of vacant possession, meaning if the property has tenants, it would be your responsibility to evict or renegotiate a new lease agreement.
If HST is payable, for example the property has commercial zoning, then HST would be your responsibility and would be due on closing.
The last thing you really need to be aware of is that if the original owner is able to satisfy the outstanding amount owing on the current mortgage before the date of closing, then you are out of luck and the deal would become null and void.
Power of Sales are intriguing to many buyers as the opportunity exists to buy at a substantial discount. I have previous experience working with Power of Sales so if you are thinking about pursuing this type of property contact me and we can make sure everything adds up in your best interest.
The basis of this post was taken from an article published by Mark Weisleder, a real estate lawyer in the city of Toronto. You can get more information about Mark and his practice by visiting www.markweisleder.com.