The terms "Power of Sale" and "Foreclosure" have become all too common in today's real estate market. While the real estate market is very strong in a lot of areas there are still distress sales. Most people use the terms interchangeably but they do mean different things that can affect the Buyer of one of these types of properties.
What does “Power of Sale” mean?
The term “Power of Sale” means that a mortgage holder (Mortgagee) has obtained the right to sell a property, usually due to non-payment of the mortgage. This doesn’t mean that the Mortgagee owns the property only that they have the right to sell it or they have obtained Power of Sale.
Is Power of Sale the same as Foreclosure?
Foreclosure and Power of Sale are not legally the same however to the average consumer looking at buying a property they mean basically the same thing. The mortgage holder has decided to sell the property for non-payment or some other breach of the agreement. Foreclosure is a term that is often heard on those late night infomercials, many of which originate from the United States where their rules and terminology are a bit different. Foreclosure is a different legal process whereby the mortgage holder actually takes over the property and any resulting equity.
Can I buy a property that is listed under Power of Sale for the outstanding mortgage amount?
This is a common misconception that a home being sold under Power of Sale can be bought for the amount of the outstanding mortgage. (Again, a byproduct of those late night infomercials). The mortgage outstanding has absolutely nothing to do with the eventual sale price of a property. When a property is taken over by the Mortgagee two or more appraisals are completed and then averaged to arrive at the expected sale price. The property is then listed for sale with the goal of selling it for the appraised value. This isn’t to say that a “good deal” can’t be obtained on a home being sold this way just that a property isn’t going to be sold for pennies on the dollar.
Is there anything different about buying a home under Power of Sale?
There are a few things about buying a home under Power of Sale.
The three main things are:
- There are no representations or warranties of any kind. The property is strictly sold on an “as is” basis. No exceptions.
- The people that defaulted on the mortgage have the right to bring the mortgage into good standing (i.e. pay of any arrears and penalties) at any time prior to the new owners taking over. If this happens, and it rarely does, they get their property back and the sale does not take place. This is not usually the case under Foreclosure.
- Negotiations usually take longer than they would with a typical Seller. Offers are dealt with by fax or e-mail only and often have to go through two or three people before a decision is made. This process can take up to three business days each time a change is made to an offer. During this time the property remains on the market and showings continue. It’s important to keep this in mind and be patient when negotiating.
Where do I find Power of Sale properties?
Power of Sale properties are listed for sale the same way that any other home is listed. They are listed on MLS and most Mortgagees do not allow the terms Power of Sale or Foreclosure to be referenced in any advertising.