What is Power of Sale?
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In Canada, a Power of Sale is much like a foreclosure. It is a legal provision allowing the actual owner of the property to sell if or when the borrower defaults on his or her mortgage. The process changes the ownership of the home, and while the lender must leave the property, the lender must still fulfill certain obligations.
How Power of Sale Works
When a borrower fails to make a certain number of mortgage payments, or when he or she falls behind beyond a certain dollar amount as specified in the contract, the owner of the property has a legal right to sell the property. Rather than a long and complicated foreclosure process, most lenders in Canada use a process known as Power of Sale. This requires an agreement between three parties: the lender, the borrower, and a trustee selected by the lender. The trustee holds the deed to the home, and in the event that the borrower defaults, sells the property to recoup the lender's losses. The contract limits the trustee's powers, ensuring a fair proceeding.
What Happens in a Power of Sale?
The good news is that the borrower is not immediately required to vacate the property in a power of sale. Unlike a foreclosure in which the resident has between 30 and 90 days to vacate depending on the contract, the borrower stays in the property in a Power of Sale until the trustee successfully sells the home. This gives the borrower time to negotiate his or her mortgage to prevent the sale.
Power of Sale vs. Foreclosure
Conversely, a foreclosure is a process by which the lender obtains an order from the courts to take the property over. Foreclosure is strictly regulated, however, and is often more difficult for a lender than a Power of Sale. When foreclosure takes place, the lender takes possession of the home and becomes the new owner, but is still required to give the borrower a certain amount of time to move out. Essentially, the lender accepts the title to the home or property in lieu of a full loan repayment. Lenders often sell these properties in auctions so they can recoup their financial losses.
What to Do if Faced with Power of Sale
If you are buying a home or other property and you have received a Power of Sale notice, it is important to contact your lender right away. Because the Power of Sale process is streamlined and expensive, many lenders are willing to negotiate with borrowers to avoid the extra expense. In some cases, you may be able to refinance your loan for a longer period, giving you more affordable monthly payments. This is preferred for the lender, as well, since they will inevitably recoup their money plus interest. The general rule of thumb here is that lenders only pursue this route when they feel there is no other way to recover their money.
A Power of Sale notice is certainly frightening, and no one wants to vacate his or her home due to an inability to make mortgage payments. Often, lenders are willing to negotiate to help you stay in your home. Even if they are not, it may be possible to refinance your mortgage with a private lender, pay your mortgage in full, and repay the private lender over time with more affordable monthly payments.