Just so we’re all on the same page, let me explain “power of sale.” Basically, if a homeowner defaults on their mortgage, the bank can take steps to sell the property to regain the money that’s owed to them.
It seems to be a common misconception that power of marketing properties are sold at a “bargain” discount. But, in reality, the lender must then take reasonable steps to get market value for the property.
It can still be worthwhile to buy a power of sale. But there are a few complications that you should be aware of.
First of all, the property is sold “as-is.” The lender won’t know whether the cellar has a history of flooding or if there are other concealed defects in the home. In a normal transaction you can ask the seller detailed the issue of the standards of the property and then request that they repair certain issues as part of the deal.
But that’s not possible with a power of sale — any mends will be your responsibility when you are complete the purchase.
With that in brain, a thorough inspection of the property is highly recommended. A home inspector, contractor, environmental consultant or structural engineer can identify underlying problems with the home’s major systems, like heating and cool, electrical, footing, and so on.
In addition, when you make an offer on the property, you can make it conditional on your contentment with the results of the inspection. If the inspection uncovers a major issue, the conditional clause may allow you to walk away from the deal.
The second issue involves the legal aspects of buying a power of sale home. If a tenant or the owner is still living in the property, that can be an additional challenge. A real-estate lawyer can provide you with guidance on how to proceed.
A legal review of the documentation from the bank is likewise a good suggestion, specially since the documents can be long and hard to interpret.
The third twist involves timelines. The bank has procedures they follow when they’re considering offers and their staff typically only handle offers during business hours. As a result, the offering process may take longer than normal.
Finally, the bank may also include a “right of redemption clause” that lets them call off the bargain if the owner catches up on their mortgage payments before the sale closes. This rarely happens in practice, but it’s a good idea to find out if they will include the clause in the Agreement of Purchase and Sale.
There are quite a few caveats to buying a power of marketing home, but it can still be worthwhile. Understanding potential matters and hiring the proper experts will go a long way.
Source: RECO and Toronto Star
