If I purchase a “power of sale” property will I get a great deal?

To explain “power of sale” in plain language, if I borrow money from a bank, we agree that the property will be a sort of guarantee. If I don’t repay the money according to the terms of my agreement, the bank can take possession of the property and sell it, and give me any money that is left over.

It is a common misconception that power of sale properties are sold below their value. In fact, lenders are required by law to take reasonable steps to get market value for the property.

A power of sale purchase brings complicating factors. I strongly advise that potential “power of sale” buyers enlist the services of a real estate brokerage and a lawyer specializing in real estate.

It’s important to know that a power of sale property is sold “as-is.” For example, the lender won’t know whether the basement has a history of flooding, or if there are other defects. Unlike a typical transaction, you can’t ask the seller about the condition of the property, or negotiate with them to repair defects. When you agree to purchase the property it is yours, defects and all, and any costs for repairs and renovations will be your responsibility.

For this reason, I recommend that you talk to your salesperson about your options for a home inspection. A home inspector, contractor or structural engineer may identify underlying problems with the home’s major systems, like heating and cooling, electrical, foundation, and so on. You may be able a make your offer conditional on your satisfaction with the inspection results. However, depending on the condition of the structure or the terms of the sale, an inspection may not be possible.

There are also legal aspects to consider. For example, if a tenant or the owner is still living in the property, you may have to comply with certain provisions of the Residential Tenancies Act, 2006. A real estate lawyer can provide you with guidance on how to navigate such a situation. A lawyer’s review of the documentation from the lender is also a good idea, since the documents can be complicated and difficult to interpret.

Also keep in mind that the person who took out the mortgage may have a right that permits them to catch up on their mortgage payments and keep the property. This rarely happens in practice, but be aware that it is a possible outcome.

Power of sale proceedings are highly technical, and consumers should seek the advice of an experienced lawyer and real estate salesperson. Doing some research to understand potential issues and hiring the proper experts will help make a power of sale transaction a positive one.

If you have a question for Joe about the home buying or selling process, please email information@reco.on.ca.

Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.

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