Terminology Tuesday: Power of Sale

If you've spent time browsing real estate listings, you may have come across the phrase "Power of Sale." For some buyers, it sounds like an opportunity. For others, it sounds a little intimidating. So what exactly is a power-of-sale property, and should you consider buying one?

In Ontario, a power of sale is a legal process that allows a mortgage lender to sell a property when the borrower has defaulted on their mortgage payments. Unlike some jurisdictions where a lender must go through a lengthy court foreclosure process, Ontario lenders can often sell a property more quickly through the power-of-sale provisions contained in the mortgage agreement.

When a homeowner falls behind on payments, the lender must first provide notices and allow time for the borrower to bring the mortgage back into good standing. If the default is not resolved, the lender may list the property for sale, typically through a REALTOR®, just like any other home on the market.

One common misconception is that power-of-sale properties are always available at huge discounts. While that can occasionally happen, lenders have a legal obligation to make reasonable efforts to obtain fair market value for the property. As a result, many power-of-sale homes are priced similarly to comparable properties in the area.

That said, there are some important differences buyers should understand. Power-of-sale properties are usually sold "as is," meaning the lender generally will not make repairs or provide warranties about the property's condition. In some cases, the lender may have little knowledge of the home's maintenance history. Buyers should therefore be particularly diligent with inspections, financing conditions, and due diligence whenever possible.

For investors, renovators, and even some owner-occupants, power-of-sale properties can present opportunities. However, they also carry risks that may not exist with a traditional resale transaction.

If you're considering purchasing a power-of-sale property, it is important to work with an experienced REALTOR® and real estate lawyer who can help you understand the process, evaluate the risks, and determine whether a particular property is the right fit for your goals.

Like any real estate purchase, success comes from careful research, sound advice, and understanding exactly what you're buying before you sign on the dotted line.