I don’t know about you, but I grew up watching HGTV! I couldn’t help but be amazed when a couple bought a property on foreclosure, pumped $20,000 and a little sweat equity into it and more than doubled it’s value. That’s the stuff dreams are made of! Unfortunately, that’s not really the Canadian realty. Instead of buying a foreclosure in Ontario, your option typically is buying a power of sale.
What is Power of Sale
In Canada, when a home owner defaults on their mortgage and they can not come to a solution with the lender, the property most often gets sold as a power of sale versus going through the courts for a judicial foreclosure (which is typically a very lengthy process). This avenue has benefits for both the lender and the property owner.
For the lender, the chance of recovering their entire investment is pretty high. For the property owner, there is a chance to pay out the lender and retain the property, or in the event of sale, collect any amount of the sale price that is above and beyond what is owed to the lender.
Challenges When Buying a Power of Sale Property
While these seem like positive solutions for the home owner and the lender, they do pose some unique challenges to anyone entering into an agreement of purchase and sale.
- The home owner remains on title until the sale is completed which means that even if you have a firm agreement of purchase and sale, the home owner may be able to get the home back which would put you out of a house.
- The lender who has facilitating the sale makes no claims or warranties on the property and sells it ‘as is’.
- Chattels and fixtures are not a sure thing so purchasing appliances, window coverings and light fixtures might all be additional costs you need to factor in after close.
- The lender must get market value for the property or they risk being sued, which means that power of sale properties are not the bargain that buyers anticipate.
Ways to Protect Yourself
Buying a power of sale property doesn’t have to be a scary thing and there are many ways to protect yourself.
- Get a home inspection! If the previous owner was financially unable to keep the property, chances are that they couldn’t keep up with needed maintenance either. A home inspection will give you an idea of costs you might be incurring in the near future.
- Don’t skimp on legal advice. The only person qualified to make sure you are protected is your lawyer. Have them review all clauses in the offer and explain how they affect you.
- Delve a little deeper. Make sure a title search gets completed, follow up with your municipality about zoning, work orders and more to ensure you don’t get any unexpected surprises.
- Don’t put all your eggs in one basket. Make sure you have housing and/or storage options in the event that the owner reclaims their property from the bank before you take ownership.
As with anything, sometimes if it looks too good to be true, it just might be! Make sure you do your homework when searching property listings and get expert advice!