Power of sale occurs when a homeowner cannot make their mortgage payments and the property goes into foreclosure. Instead of giving the property away, the bank or the lender which provided the mortgage is able to sell the property to make back their lost money. If you’re thinking of purchasing a foreclosed property through power of sale, there are five myths associated with it that are debunked below.
This is one of the biggest myths surrounding power of sale. Unless specified in the purchase agreement, the bank or lender has the right to cancel the deal you made if the power of sale property’s owner catches up on their mortgage payments before the deal closes. You should consult a lawyer before signing the purchase agreement of a power of sale home and have a clause put in that says the deal must go through even if the POS property owner is able to make their mortgage payments again.
Yes, power of sales take less time than traditional home sales but that doesn’t mean they happen overnight. There are still legalities and paperwork that must be completed before you take ownership of the property.
When it comes to power of sale properties, they may seem like a great deal but in fact, they’re being sold for what they’re worth and not under market value. Power of sale properties still have to be listed on the MLS system and appraised by accredited appraisal professionals.
When you buy a home through traditional means (not a property that has been foreclosed) you’re entitled to let the sellers know that the roof is slanted (or any other issue) and you won’t buy the home until it’s fixed. With a power of sale property, you have to buy the home as is. You can’t tell the seller, in these cases it’s usually a bank, that you need repairs done before you purchase. Whatever condition the power of sale home is in, that’s the condition you buy it in.
The foreclosure rate in Canada is actually very low. Only about 1% of mortgages in this country are in arrears (lack of payments being made) because our mortgage lending guidelines are a little stricter than those of our neighbours to the south. Here in Canada, mortgages are usually only given out to those who will be able to pay back them unlike in the United States where approximately 13% of mortgages are in arrears. That’s not to say that you won’t be able to find a power of sale property to purchase in Canada but there aren’t that many.
Before you decide on purchasing a power of sale property, consult a mortgage broker. Although, it may seem like you’re going to get a great property for cheap, it’s not always the case. A mortgage broker can help you decide if this is worth it and recommended a realtor.Back
Canada’s mortgage website
Your home is your most valuable asset. It is probably the single largest investment you will make in your lifetime. Your home is more than a place to rest your head and raise a family. Your home contains equity. It is a treasured resource and in some cases, can even be used as an ATM (aka cash back mortgages and HELOCs – don’t worry we’ll get there).
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