If you read our content regularly, you may notice we generally like to look at life through a positive lens. However, the real estate market can often be difficult for many people, especially when inflation is high with interest rates to match. 

Sometimes, it becomes necessary to shed light on deeper topics that everyone should understand during challenging times. Power of sale and foreclosure are not pleasant topics. However, knowing how they work and why they happen makes them more manageable if and when you ever have to deal with them.

Power of Sale

A power of sale happens when a property owner is unable to keep up with the cost associated with owning a home. Usually, it stems from one or more missed mortgage payments. It can also be the result of failure to pay property taxes or to obtain adequate insurance.

In any case, the homeowner finds themselves unable to make ends meet, and the lender steps in to force them to sell the property. Here’s how the process works.

  • The homeowner receives a Notice of Sale from the lender. This document is sent no earlier than 15 days after the default by registered mail to each person on the title along with any co-signers or guarantors on the mortgage. 
  • The lender then must wait 35 to 40 days before taking any other action. This waiting period allows the mortgage holder to pay off their outstanding amount and bring their account back into a good standing. If the homeowner does not pay within the grace period, the lender then sends a statement of claim, which essentially means they are suing for the loan. 
  • The homeowner then has 20 days to issue a statement of defence if they wish to contest the proceedings.
  • If the homeowner still is unable to pay the mortgage, the lender can apply for a Writ of Possession. Once approved by the courts, the eviction process begins. The lender then takes possession of the home and can sell it to recover the money owed.

During a power of sale, the homeowner’s name remains on the title even though the lender forces a sale. They may be behind on their payments, but they are still the rightful owner of the property. Any funds remaining after all debts are paid go to the seller.

Do you need to sell your home during a challenging market? The resources below can help:

Foreclosure

Power of sale and foreclosure are similar in many ways. In both situations, the homeowner is behind on their payments, and the lender is taking steps to recoup their funds. Both processes begin with the lender issuing a Notice of Sale, followed by a 35 to 40-day period allowing the homeowner to catch up. If the homeowner is still unable to pay, the lender applies for a Writ of Possession, followed by a Statement of Claim that clearly indicates whether the lender is pursuing a power of sale or foreclosure.

Though neither of these situations is ideal, it is far worse to face foreclosure than a power of sale. The reason is that, with a foreclosure, the lender assumes ownership of the property. Even if the home sells for significantly more than the original homeowner paid for it, they will not see any of the profit and lose all equity they may have built.

The Silver Lining

Power of sale and foreclosure are frightening concepts, but they are fortunately seldom used in Canada. When it does happen, it’s not always because the homeowner is in arrears. For example, imagine that the homeowner is using the property for illegal purposes, has refused to pay their property taxes, or has allowed the house to fall into a state of disrepair. 

Very few lenders pursue power of sale as a remedy for non-payment, and foreclosures are even more rare. Both procedures are long, complicated, and require involvement from the courts. As such, they are only used as a last resort when all other attempts to remedy the situation have failed.

The lender typically doesn’t want to take ownership of the home. They just want to recoup all or most of the money that they’ve lent out. Often, you can avoid power of sale and foreclosure by cooperating with the lender and working out a plan for repayment.

Should you consider downsizing now? The posts below can help you decide:

Avoiding Foreclosure or Power of Sale

When it comes to non-payment, prevention really is the best medicine. However, life is unpredictable, and a sudden job loss, unforeseen expense, or illness can interfere with your ability to manage your monthly payments. 

If that happens, your best bet is to be proactive rather than wait for the lender to make the first move. Should you sense a power of sale, or worse, foreclosure is imminent, there are steps you can take to prevent it.

  • Reach out to your lender to let them know you want to come to an agreement. In the past, some banks have extended the amortization period on a mortgage to help keep them affordable. However, you won’t know your options until you’ve had the discussion.
  • Consider your lifestyle. Are there any expenses you can cut down on until you bring your account back into good standing? 
  • Look into obtaining a second mortgage to pay off the first. This can be a risky option if you’re already struggling. However, it’s worth looking into if it means the difference between keeping your home or losing it to foreclosure.
  • If you receive notice of an impending foreclosure, try to negotiate with your lender to change it to a power of sale. That way, you can at least keep any remaining equity in your home.

If you’re struggling financially, your best bet may be to sell your home on the open market with the help of an experienced real estate agent. Selling before you receive a Notice of Sale allows you to fully capitalize on the value of your home while protecting your credit rating. If your final price is more than what you originally paid, you will be in a better position to make a fresh start in your life.

Do you have questions about selling your home in this market? We have been through it all and are happy to help. Reach out today to david@batorigroup.com, bobby@batorigroup.com, or call (416) 485-7575  for more information.