Power Of Sale Explained: Key Considerations For Realtors And Homeowner

In real estate, especially during times of financial distress, properties may be sold under a Power of Sale. This legal process allows lenders to recover debts when a borrower defaults on their mortgage, but it also comes with its own set of procedures and implications. Here's a breakdown of how the process works and what realtors, both listing and buying, should watch for.

What Is a Power of Sale?

A Power of Sale is a legal mechanism that allows a secured lender to sell a property without going through a full foreclosure proceeding.¹ Power of Sale is governed by the Mortgages Act and, in the event of the borrower's default, the lender may acquire the legal authority to sell the borrower's property to recover the amount owed under the loan, with any surplus proceeds going to the borrower after all debts are cleared.

The Default Process and Issuance of Notices²

If a borrower breaches one or more terms of their mortgage agreement, the lender must formally notify the borrower of the default by issuing a Notice of Sale. The lender must wait 15 days prior to issuing the Notice of Sale. Issuing the Notice initiates a 35-day redemption period (or 40 days if the property is occupied by a married couple) during which the mortgage can be brought into good standing.

If the borrower fails to remedy the default within the redemption period, the lender may file a Statement of Claim once the redemption period has expired to obtain possession of the property. After a Writ of Possession is obtained, which authorizes the eviction of the borrower, the lender may legally list the property for sale.

For a detailed breakdown of the default process, please refer to our previous article here.

Have You Received a Notice of Sale?

Homeowners in receipt of a Notice of Sale should get professional advice immediately. The Lender will incur costs to issue the Notice of Sale and the Writ of Possession. If there is a possibility to negotiate a payment plan with the Lender or a private sale to a third party, the homeowner will want to explore that option fully before relinquishing control to the Lender.

Where are Power of Sale Properties Listed?

The savvy real estate investor is aware that lenders are often motivated to sell quickly. A lender will typically obtain two appraisals prior to listing a property for sale and will typically move forward with the first reasonable offer. The lender will not necessarily wait for the strongest offer or hold out for a higher offer.

While most real estate platforms don't offer a specific filter for power of sale listings, there are several effective ways to find them:

1. Work with an Experienced Realtor
   Partner with a real estate agent who is familiar with power of sale transactions. They can help identify these properties through MLS and guide you through the specific legal and financial considerations involved.
2. Use Specialized Websites
   Some websites focus exclusively on power of sale and foreclosure listings. These platforms often provide regularly updated opportunities across Ontario.
3. Watch for Lender-Owned Properties on MLS
   While browsing major real estate websites (such as MLS.ca or Realtor.ca), keep an eye out for listings where the seller is a bank or institutional lender. This is often a strong indicator that the property is under a power of sale.

4. What Should the Listing Realtor Watch For?

When handling a power of sale property, the listing realtor must be especially diligent to protect both their commission and the integrity of the transaction. Key considerations include:

• Commission Protection: Ensure that the sale price is sufficient to cover all selling costs, including realtor commissions. If the property's value won't cover these costs, the realtor may need to negotiate with the lender for a reduced payout or adjusted sale terms.
• Outstanding Debts: Prior to accepting any offer to purchase, the Realtor must verify the value of all secured debts on title, including mortgages, liens, and private loans. The sale proceeds must cover these debts.
• Tax Arrears: Check for unpaid property taxes or utility arrears that may be registered against the title. These arrears have super priority over the payment of secured debts and must be paid out of sale proceeds prior to any other lender payout.
• Clear Communication with Lender: Coordinate closely with the lender to confirm any conditions of sale and ensure timely execution of legal documents.

5. What Should the Buyer's Realtor Watch For?

Representing a buyer in a power of sale transaction requires special attention to the unique risks and limitations that come with these properties. Key points include:

• "As Is, Where Is" Condition: Power of sale properties are typically sold without any warranties or representations. Buyers must accept the property in its current condition.³
• No Post-Closing Adjustments: Items such as appliances, light fixtures, or even damage to the property are generally not adjusted post-closing. What the buyer sees at the time of offer is what the buyer gets. Therefore, the buyer will need to retain experienced counsel to perform all necessary searches prior to closing.
• Limited Access: There is often no final walk-through granted before closing. Buyers should complete thorough due diligence as early in the process as possible.
• Title and Legal Review: Recommend that buyers work with a real estate lawyer experienced in power of sale transactions to confirm clear title and identify any lingering risks.⁴