Power of Sale and Foreclosure explained
Wed, Nov 23, 2022
If for whatever reason, you find yourself in the position of not being able to make your monthly mortgage payments on time,
you could potentially face repossession and forced sale of your home. This USUALLY happens through one of two legal procedures available to your mortgage Lender/Bank known as Power of Sale or Foreclosure.
Depending on which method your Lender/Bank decides to use against you, your options to remain in your home will be limited and your financial outcome will be HUGELY affected.
Below, I explain both processes and the key differences between the two. I can provide you with options that will stop a Power of Sale and/or Foreclosure to keep you in your home, assuming you have the available financial resources to allow you too ie: Income and Equity.
A Power of Sale is probably the most commonly "forced sale procedure" used by a Lender/Bank when a homeowner cannot meet their monthly mortgage payments. In a power of sale, a mortgagee (Lender/Bank) obtains the legal right to evict residents from their property and sell the property to recover the funds owed.
Lenders/Banks prefer this method of Power of Sale over Foreclosure because the process is MUCH faster and involves less court time, and the legal costs are lower. A Lender/Bank need only wait 15 days after a missed payment before they can start the power of sale process. The process involves the issuance of a Power of Sale Notice in which you will be afforded a minimum of 30 days or more to bring your Mortgage account up to date. A failure to meet this requirement will most likely result in the issuance of a Judgement by the court firstly, and then the issuance of a Writ of Possession to evict you from your home which is usually done with the assistance of the Sheriff.
Under this method of Power of Sale the Lender/Bank is obligated to sell the home at "fair market value" and once sold, the remaining funds from the sale of the home, after all costs are deducted for the Lender/Bank, Real Estate Agents, Lawyers and any other third party involved in the sale, will then be issued back to the homeowner. In this process, If at any point you feel your home was under valued and sold by your Lender/Bank with their only motives being a quick sale and the recovery of their funds owed, you have every right to sue the Lender/Bank for the recovery of funds you feel you would normally have recieved, had you sold the home under normal circumstances.
In the foreclosure method, a mortgage lender through the legal process takes title to the property. What this means is that the lender will have complete legal ownership and right over the property to do with as they wish. The options available to them mean they can rent out the property or sell it should they so desire.
Since the lender legally owns a property after a foreclosure, they do not have the same obligation to sell the property at
"fair market value". They also get to keep all proceeds of the sale with NOTHING returned to homeowner.
If the Lender/Bank has a shortfall after the sale meaning the sale did not cover the debt and costs that you owed, by them choosing the Foreclosure method, they also choose and lose the right to sue you for the difference or shortfall.
Firstly, do not ignore the Notice of Sale that came in the mail.. Call your Mortgage Broker straight away. Your Mortgage Broker will set the wheels in motion to Stop the Power of Sale. The sooner you make that call to your Broker, the more time your Broker will have to stop the Power of Sale. There's no point in calling your Broker the day before the Notice of Sale expires. The call needs to be made straight away.
The first option for your Broker will be to put in place a new 2nd Mortgage to pay off the arrears and legal costs on your now defaulted 1st Mortgage. This process can take up to a max 10 business days to complete by the time an appraisal is completed on your property and the funds are sourced through a private lender, your Lawyer will also need time to prepare the necessary paperwork in order to register a new 2nd Mortgage on your home and with all that being said, you will also need to book time off work to accomodate the signing of all necessary paperwork for both your Broker and your Lawyer so the timing is of the utmost importance from when you receive the Power of Sale Notice to the time you make the call to your Broker. Your Broker will combine your new 2nd Mortgage with the 1st upon the renewal date
Another option that may be available to your Broker might be to refinance your existing now under Power of Sale mortgage. Due to the fact that this Mortgage is in default, the available pool of Lenders needed to restructure this Mortgage will have gotten very small so it may take your Broker more time than usual to source a Lender with an acceptable rate and payment you can afford.
If your Broker cannot source a Lender for your mortgage due to qualifying issues and has exausted all available options it may be time to move to your 3rd option and that will be to put your home on the market yourself at a "fair market value" before your Lender/Bank has the legal right to do it.
My name is Sean Ryan and I'm the Principal Broker with Hibernian Mortgage Services Corp.
Being a homeowner in Canada is a big monetary undertaking. What you may not recognize is that mortgage lenders are making it more difficult through supplying mortgage coverage that frequently comes with ugly surprises.
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Hibernian Mortgage Services Corp