Keeping up with loan or mortgage payments is critical to keeping property in the hands of the borrower. A person can lose their home if they don芒鈧劉t meet the terms of the loan or mortgage agreement.

Getting a loan or mortgage often requires collateral in the form of property such as house, empty lot, or even a car.

Private lenders provide loans based on the value of a borrower芒鈧劉s equity in a property. Private lenders often approve loans or mortgages up to 75 percent of the borrower芒鈧劉s equity in a property.

If a borrower fails to make the minimum monthly payments, the private lender can initiate a power of sale to get their money back.

Power of sale is very influential when it comes to enabling borrowers to secure loans from lenders, but what exactly is power of sale, what does it do and how is the procedure different from a foreclosure?

What is Power of Sale?

A power of sale is an action that a lender can take when a borrower does not meet the terms of a loan or mortgage agreement.    It is described in a clause in the loan agreement that stipulates how and when the lender can initiate a power of sale.  Many lenders will not approve a loan or mortgage without a power of sale clause, especially when dealing with borrowers with low income or poor credit.

When a private lender initiates a power of sale, the property that was used as collateral is put up for sale.   The lender can evict the occupants of the property.

When the property is sold, the lender receives the amount of money overdue on the loan or mortgage plus any fees and penalties as prescribed in loan agreement. Some lenders can charge fees upwards of $30,000 throughout the power of sale process.  The borrower keeps the remaining funds from the sale of the property. 

Is Power of Sale Different Than Foreclosure?

Foreclosure is a different legal procedure.

During a foreclosure, the lender gains title to the property. This means the lender becomes the new owner of the property.   They can keep it or sell to recover the money they lent to the borrower.

In a power of sale the lender must sell the property to recover the money they lent. 

The power of sale process takes about six months for the lender to complete before they can list the property for sale.    The foreclosure process can take up to a year.

A foreclosure is not the same as power of sale and both come with different methods needed to stop them. If you are facing a foreclosure, click here to learn more about it and how you can stop it.

How Do You Stop a Power of Sale?

The only way to stop a power of sale is to pay the debt you owe. There are a few ways you can do this:

Negotiate a New Payment Plan

Meet with your lender as soon as you miss a payment or realize you can芒鈧劉t make the next one.

The power of sale process can start in as little as 15 days after a breach of the mortgage or loan agreement.

Ask your lender if they can extend the payment term to reduce monthly payments on the principal amount or if the amount you didn芒鈧劉t pay can be included on upcoming payments. If you have received a notice of sale then the lender has already initiated power of sale, however, most agreements allow a month-long grace period in which the borrower can try to rectify the situation before having to pay the full or missed debt.

Get a Second Mortgage or a New Mortgage

Look for lenders, usually private lenders, who help people who have poor credit or who are facing power of sale.

If your original lender requires the missed payments to be repaid along with fees, then you should look for a second mortgage that pays off only the missed payments and penalties.

If your lender asks for the full mortgage to be repaid, then you will need to look for a completely new mortgage.

In both cases you will need to manage a new payment plan in order to prevent any further threat of power of sale.

Many private lenders allow payment of interest only, however their interest rates range from 7 to 15 percent. In addition, lenders may charge administrative fees up to an additional 3 percent of the mortgage or loan. You can find more information about private mortgage lenders in Toronto here.

Sell Your Property Before Your Lender Does

If you are unable to find a lender for a new or second mortgage and if your current lender will not renegotiate your original agreement, then you should consider selling your property.  You can pay off your debts while getting the most value for your property. If your current lender sells your property through power of sale, you will have to pay fees and penalties to the lender along with repaying your debt.

Buying a Power of Sale Home

When lenders seize a home or property through power of sale, they must sell it at the current market value. They cannot increase the price to earn more than what they are owed. For this reason, power of sale homes are often the cheapest listings available, especially in urban centers like Toronto where listings are some of the priciest in the country.

According to the Toronto Regional Real Estate Board, the price of single detached homes in the City of Toronto increased nearly 12 percent since September 2019. The average price of any residential home in Toronto is projected to increase 5 percent by the end of 2020.This growth is helpful for borrowers because their property also increases in market value, and thus they have more equity to use as collateral for loans and mortgages and to avoid power of sale.

The Power of Sale Process in Toronto

The power of sale process can start as early as 15 days after a breach of the loan agreement. When a power of sale process has been started you will receive a Notice of Sale outlining; the mortgage default, what needs to be paid to stop it and the deadline you have to pay off the amount owed. This is the time to try to negotiate a new payment plan with your lender or pay off the missed amount without losing your loan.

Once the deadline for repayment passes (usually around 30-40 days), you will be sent a Statement of Claim form that details who is making a legal claim against you and why. This means that the courts have started processing the power of sale on your property.

Once a judge signs off on the Statement of Claim, a Writ of Possession will be created. This is document is sent to your local police, telling them when your home will be possessed, and which parties are owed control over it.

Once the police receive the Writ of Possession you will be sent an Eviction Notice. The notice will tell you when the police will arrive to ensure you have vacated the property. Now the lenders can list your home on the market.  Unless you can come up with the full loan amount through a new mortgage or a second mortgage the lender or lenders will sell your property.

There are many private lenders across Ontario and in Toronto that specialize in working with individuals facing power of sale.

If you are interested in buying a power of sale property or how to stop your home from becoming one, visit The Mortgage Broker Store for a free consultation with a licenced broker in      Ontario. Speak with local experts and lawyers to find out about the rules and lending guidelines around power of sale in Toronto and how you can make the best choice for your home.