Power of Sale's - Are They Really Bargains ?

 

 

There is a public misconception that buyers can get "a steal of a deal" on a "Power of Sale" property. According to the Mortgages Act Ontario http://www.canlii.net/on/laws/sta/m-40/20080821/whole.html the guidelines for handling Power of Sales is very specific.

 Once the lender or financial institution has taken over the property, they must sell the property the same way as any other property. It is usually listed with a REALTOR on mls for the appraised market value. They have to prove that the home is exposed to the open market for the proper amount of time to find a buyer and obtain market value.

The lender has complete control of the negotiations. Neither the Listing Agent, the Buyer Agent or the buyer will have much say and the offer process is done via fax.

The lender usually asks for between 48 hours and 72 hours  irrevocable to review the offer. They will only negotiate during business hours and not on weekends. There often seems to be no sense of urgency on the lenders' part, even though usually the property is empty at this point, and the lender is paying for the heat, hydro, taxes, etc. This is simply a business decision for the Mortgagee, unlike when you are negotiating with a seller where there is emotional attachment. Negotiations can drag on with a power of sale and the buyer may potentially miss out on another suitable property that comes on the market.

Buyers must be aware that when buying a power of sale, the Mortgagee offers the property in an "as is" condition. There are also no warranties or guarantees provided. There are usually many schedules attached by the Bank, which I recommend the buyer have their solicitor review.


When the property is first listed, it is very unlikely any low offers will be considered. The Mortgagee must be able to prove they did their part to get the highest and best price. After a certain time on the market, the Lender may reduce the price to obtain a suitable offer. At this point the Lender usually is willing to negotiate a little more. Banks and financial institutions don't want to be in the real estate business. Inventory properties must be heated, cooled, winterized, cleaned, etc.

Once a power of sale is sold, any equity leftover after the mortgage loan is paid back to the lender, is returned to the mortagor (borrower).

So are there really any deals out there with power of sales? Not usually when they first come on the market. Perhaps, if the property languishes on the market for a few months but in a seller's market as we are experiencing in Oakville right now, power of sales are even getting multiple offers.  When inventory is low, everything sells.

It is very important that a buyer obtains a building inspection on a  vacant power of sale property . Often times the home has not been maintained properly prior to becoming a power of sale and as mentioned there is no recourse after closing.

When people ask me if there are any bargains out there, I tell them to consider all properties that meet their needs. If a power of sale falls in that category, they can definitely look at it. There are risks involved though. In a seller's market there are no steals.  Oftentimes there are not even any deals.  Just because a home is listed as a power of sale does not mean the bank is going to "give it away."

I feel it is important for REALTORS to educate buyers about power of sale properties instead of giving the impression that  power of sale properties are available for a cut rate price.

Written by Jenny Kotulak - All Rights Reserved - Not to be copied