Caution when Buying a Power of Sale


Most think that a Power Of Sale is a sure fire way to get an incredible deal on a home. The reality is that a Power Of Sale is not that simple and easy. Consider this....Real Estate agents see homes long before they come on the market for the consumer. If they were truly the rock bottom price, deal of the century that some think, we would buy them up ourselves!


The reason that most Power Of Sales don't sell at massive discounts is that mortgagees (the lender) are required by provincial law to market a property in order to get "True Market Value". True Market Value means simply means you can prove it. Two appraisals, by licensed Appraisers, are required to establish what the True Market Value of a home is. This value is not necessarily the same as "Market Value". Market Value is what a property will sell for in the current market, given an informed buyer and seller that are not under any duress. Since the seller in a Power of Sale is certainly under duress, True Market Value tends to be less than Market Value. The question much less? Every situation is different and there are no hard fast rules. It depends on how long the home has been on the market, the condition of the home, etc.


Buying a home under Power Of Sale also has risks inherent to it. On selling under “Power of Sale”, the lender will include a 'Schedule' to the Agreement of Purchase and Sale that is usually quite lengthy and contains certain cautions and risks the buyer agrees to assume. For example...


1. The buyer accepts property “as is” as of closing…without representation or warranty by Seller (the Seller in the case of a Power Of Sale is the Motgagee, or lender) as to fitness or state of repair and condition; zoning or lawful use; location of structures or fences. If you move in and find the furnace doesn't work, the roof leaks, or the home is in disrepair, you have no recourse. 

2. The buyer assumes all work orders and deficiency notices against the property. This can be quite costly and you will not be able to sell the home, or possible move in, before these are taken care of.

3. Seller is not required to discharge mortgages, liens or encumbrances registered after its mortgage.

4. Right to Redeem: Buyer acknowledges the right of the owner or any other person, if any, to redeem or place the mortgage in good standing prior to closing.  In such cases, the agreement becomes null and void, buyer’s deposit is returned and Seller is released from liability. This is a big one, and certainly does happen. If the current owner raises the money to satisfy the mortgage, and any penalties, fees and costs incurred by the lender, then he may take back possession of the home. Your deposit will be returned without interest, or penalty, but you have lost the home and are backy o square one.

5. Fixtures and Chattels: Seller only delivers possession of fixtures and chattels found on the property at closing; seller does not warrant their ownership or state of repair and buyer assumes liens on chattels if any. If the appliances do not work when you take possession, you have no recourse. also, if there is a lien, meaning money is owed to a company in relation to the appliance, you accept responsibility for said lien.

6. Dealing with Tenants: There are also a number of provisions dealing with tenants on the property and the buyer wanting vacant possession.

7. Among the biggest cautions is that the buyer relies on his own home inspection and investigation regarding quantity, quality and value.


So...I recommend that a Buyer:

•    Make the offer conditional on buyer’s lawyer approving the terms and conditions of the offer that would include a review of the lender’s schedule to the agreement.?It’s important that all provisions in a “Power of Sale” schedule be understood before proceeding.

•    Have your lawyer perform a preliminary title search and make a request for any work orders and deficiency notices from the municipality as part of the lawyer review.

•    Make the offer conditional on obtaining a mortgage, being satisfied with a thorough home inspection and report and verifying any information supplied by the Seller if possible.


Now that I have scared you away completely, Power Of Sale deals are closed all the time and without any problems. It is imperative that you prepare and plan for all contingencies, however. Knowledge is power and with my help, you can avoid many of the problems above.


Put my experience and knowledge to work for you! Call me at 416-450-4503, or,
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