Every sector in the Canadian economy has been impacted by the rise in interest rates, but few quite as drastically as the real estate market.
The dramatic rise in the prime interest rate is having a devastating impact on household budgets, and as a result we are seeing more and more power of sales in the real estate market in the Durham Region, something that has been relatively uncommon up until now.
What is a Power of Sale?
A power of sale is a forced sale by the lender who has been granted the right to sell a property because the homeowners have defaulted on their payments.
A power of sale occurs when a lender has exhausted all options to receive payment from the homeowner, or the homeowner has repeatedly defaulted on their payments, and they see no other way out than working with the lender to sell the property.
How is a Power of Sale executed?
The process does give the borrower many opportunities to stop the power of sale by paying the mortgage in full via refinance or selling the property themselves.
The lender must provide the requisite notice to the homeowner that they are moving towards power of sale before listing the property.
Once the property is sold as a power of sale lenders would be made “whole,”, meaning the lender would receive back the funds they lent to the homeowner, any second mortgages would get paid, and anything left over would go to the homeowner.
As a buyer, can you purchase a power of sale property?
The answer is “yes”, but there are a few things to keep in mind:
- Purchasing a power of sale property does not mean you are getting a “deal”. The lender is under obligation to sell the property at a fair market value.
- When you purchase a power of sale, you are buying the property “as is”. The lender (the seller in a power of sale situation) accepts no liability for the condition of the property, the chattels and the fixtures.
- A power of sale contract is very different than a standard property sale contract. These sales are complex; you need a trusted real estate lawyer to look through the contract for you before you sign anything.
Power of Sales are happening in the Durham Region
A luxury home in Oshawa recently made the news as it sold for power of sale at an $800,000 loss on its market value in two years.
According to DurhamRegion.com, the house was purchased for $2,550,000 in March 2022. The real estate market was on fire at this time and interest rates were low, and the homeowners could not keep up with the payments.
McMurter & Associates was not involved in this transaction but we have seen variations of this situation. With mortgages skyrocketing, homeowners have felt the pinch of the rise in prime interest rate, particularly those who were locked into a variable rate mortgage.
If you have any questions about purchasing a power of sale property, please reach out to us with any questions. We are happy to review your options with you and we will inform you about everything you need to know about the contract you are potentially going to sign.
McMurter & Associates is here to help.
McMurter & Associates has been providing real estate legal services for over 30 years in the Durham Region. If you have any questions about your real estate transaction we are available Monday to Friday, 9am until 5pm. Email: info@mcmurter Phone: 905-666-9200.