What is a power of sale?
A power of sale essentially allows the lender – not a homeowner – to sell the home if the borrower defaults on the mortgage or the lender chooses not to renew at end of term. A power of sale is a clause that is written into a mortgage that gives the lender the authority to sell the property.
In terms of mortgages, a power of sale is very similar to a foreclosure. In fact, both terms are often used interchangeably. In the case of a mortgage foreclosure, the lender takes total control over the property and owns it completely, then is allowed to sell it without having any obligations to the owner as far as resale price is concerned. With a power of sale, the lender must sell the property for the highest price possible with any proceeds coming out of the sale going towards paying off the remainder of the loan and any interest arrears or commissions associated with the default. If there are any funds leftover, they go back to the homeowner as title still remains with them.
When it comes to dealing with outstanding mortgages, each province and territory in Canada either uses the power of sale or foreclosure. The foreclosure route is used in Quebec, British Columbia, Alberta, Manitoba, Saskatchewan, Nova Scotia and the three territories. On the other hand, Ontario, Prince Edward Island, New Brunswick and Newfoundland and Labrador use the power of sale.
Why are the Private Lenders asking for their mortgage money back?
Most Power of Sales today are coming from Private Lenders — either individuals or MICS. 85% of Private Mortgages are 1-year terms. Private Lenders can decide NOT to renew at end of term. At this point a demand for repayment goes out to the borrower. If the borrower can’t find another source of financing they are left in a bind.
- MICS are receiving redemption requests from investors and need to raise cash to pay them out.
- Property Values have fallen and the Lender wants their money back before property values fall further.
- Private Lenders funded from HELOCS on their homes and Rates have risen to the point they simply want their money back to pay down that HELOC.
Pro Tip: Make sure you have an exit strategy when dealing with Private lenders. And follow your plan so you can move your mortgage back to regular lenders and avoid this scenario.
What Can Borrowers Do When Facing a Power of Sale?
If you are a homeowner who has fallen behind on your mortgage payments and are facing a potential power of sale process, there are some options available. A power of sale can often be a time-consuming and complicated process for lenders, so they may often be willing to come up with a different plan of attack to get their loan money back if you are willing and able to meet them in the middle.
If you default on your mortgage, be sure to get in touch with your lender/ mortgage broker right away to discuss any possible alternatives so that you can bring your mortgage payments back up to par and avoid a power of sale or another process that will leave you without a home.
One option that you may want to consider is to secure another mortgage from another lender. This mortgage can then be used to pay off your original mortgage and any arrears that come with it or to bring the arrears up-to-date with a second mortgage. This option might even allow you to spread out the rest of your mortgage repayment over a longer time frame and even reduce your monthly mortgage payments.
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