Would you consider purchasing a home being sold by power of sale in Toronto area? If so, you should know how such a purchase is different from re-sale real estate purchases. Many buyers may have unrealistic expectations about price, so this article will point out some of the perils of such a purchase.

The normal re-sale real estate transaction involves the Owner of a property who sells to a Buyer. In a sale by power of sale it is not the Owner who is selling the property but rather the lender. When a homeowner has the defaults on mortgage payments the Lender has the right to proceed to sell the property providing the proper procedure is followed.

A Lender (any financial institution, company or even a private person) proceeding pursuant to a power of sale must follow strict rules. There must be default in the loan and the ability for the owner to correct the default. A notice must be sent to the owner and anyone else who has an interest in the property, which states the amount due to the lender. The notice will also state a date by which the owner must pay the arrears and costs. During the notice period the lender is not allowed to take any action with respect to the property, but when the notice period passes the property can be sold.

A lender, who sells a property for less than the outstanding debt, may sue the owner of the property for the shortfall. Likewise, the owner of the property may sue the lender if they can prove that the sale was made for less than the value of the property.

So the lender has an obligation to sell the property for the fair value. The lender should be careful that the property is not sold for much less than this amount because they will either lose money, or open themselves up to a lawsuit from the owner. In other words you may find a good price for a property but the chances of this are the same as on a re-sale market.

There are also some disadvantages. Most lenders require their own schedules with the agreement, which include such matters as the state of the property and the redemption by the owner. The lender will give no warranties with respect to the state of the property or even the ownership of any chattels on the property. You will not get any assurances that the appliances work or that the property contains no contaminants. 

Yes, you may find a good deal when you buy a home selling by Power of Sale but chances are equal to find the same or even better deal on a re-sale market dealing with motivated Seller.

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