Over the past year, we have seen an increase in the number of bank sales. These are usually sold under “Power of Sale”. In other words, the owner has defaulted on the mortgage and the lender is selling the property.
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...
- The buyer accepts property “as is” as of closing…without representation or warranty by Seller as to fitness or state of repair and condition; zoning or lawful use; location of structures or fences.
- The buyer assumes all work orders and deficiency notices against the property.
- Seller is not required to discharge mortgages, liens or encumbrances registered after its mortgage.
- 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.
- 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.
- Dealing with Tenants: There are also a number of provisions dealing with tenants on the property and the buyer wanting vacant possession.
- Among the biggest cautions is that the buyer relies on his own home inspection and investigation regarding quantity, quality and value.
We 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.
We’ve put together a 15-point checklist entitled Power of Sale Clauses--What They Mean (PDF).
Eugene Pilato is the broker of record at Century 21 Today Realty Ltd. in Fort Erie, Ontario.