There are major differences between a house that is being sold as a foreclosure and a house that is being sold under Power of Sale. Banks, Lenders, Trust Companies, etc,. in Canada choose different legal responsibility rules that they must abide to. One is a Judicial Sale and the other is Power of Sale. You very rarely see a Foreclosure in Canada.
A Judicial sale involves the supervision of the court and is popular in British Columbia, Alberta, Saskatchewan, Manitoba and Quebec. The Lender must apply to the court in order to get permission to physically seize control of the property and sell the house on behalf of the owner.
A Power of Sale allows the Lenders to sell a property without the involvement of the courts by way of provincial legislation and/or mortgage documents. This is a popular method in Newfoundland, New Brunswick, Prince Edward Island and Ontario.
In the United States, as now seen quite often through the media, lenders take the route of foreclosure which is commonly referred to as a “short sale”. Many people often make the mistake of assuming that it is similar in Canada.
We are going to focus on Ontario for the purpose of this article as Power of Sale is the most common way that Lenders use to redeem monies owed. It is important to realize that a Power of Sale does not give ownership back to the Lender.
Guidelines when selling under Power of Sale:
- The price must be reasonable
- Must be listed on an MLS System
- Must obtain appraisals
- The mortgagee may not be able to recover costs, if they are deemed to be improvements
- The sale process needs to be expeditious
- The mortgagee must negotiate with potential purchasers in good faith
- The owner is entitled to an accounting
- Any excess funds recovered are to be remitted to the owner (mortgagor)
- Any deficiency may be recovered from the owner
The above are only guidelines that are typically used by the Lenders.
Foreclosure is the legal and professional proceeding in which a Lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the Lender by forcing the sale of the asset used as the collateral for the loan. Foreclosure ends up transferring ownership to the Lender. The Lender's obligations when selling the property are quite different than selling under Power of Sale:
- The Lender has no legal responsibility to obtain the highest price
- The sale process does not need to be expeditious
- The mortgagee does not need to negotiate with prospective purchasers in good faith, or negotiate with anyone at all
- Any excess funds recovered are for the account of the mortgagee
- The mortgagor has the right to have the property sold by judicial sale, converting the proceedings into a sale somewhat like a power of sale, with similar rights including an accounting and entitlement to excess funds
- No funds are remitted to the owner (mortgagor)
- The owner is entitled to an accounting prior to the final order for foreclosure, but not afterwards
- If there is a deficiency it cannot be recovered from the owner
As you can see, when looking for a deal on a Power of Sale Property in Ontario, it is important to know how to structure your offer so the Lender will accept it. Lenders are not able to accept the first low offer that is submitted. The Lender needs a paper trail in order to prove that they tried to get as much for the property as possible. Timing is everything.