Power Of Sale
For the Mortgage Lender
It has been probably two decades since there were abundant power of sale actions in the GTA. Most Realtors today have little knowledge of the workings of a mortgage forced sale.
Barry Lebow has lived through the downturns of the 1970s, the 1980s and the 1990s. He has sold multiple power of sale and foreclosure residential and commercial properties. He has attorned rents and property managed during the arrears period. He has also been a private lender and has had to invoke powers of sale. For many years, Barry was an active mortgage broker and instructor of the courses for the mortgage broker exams.
Today, Barry will undertake the following for a lender:
- meet with the homeowner/mortgagor and discuss the best methods to make the process as beneficial as possible for both parties;
- using a method that Barry started in the 1980s, he found a way to achieve the highest possible pricing for a power sale, when there is co-operation with a reasonable homeowner
- he will arrange for independent appraisals from members of the Appraisal Institute of Canada;
- he will provide an additional Realtor letter of valuation;
- when vacant, he will arrange for locksmith services;
- he will deal with any clutter, debris left by homeowners;
- he will oversee minor repairs to make the property more saleable;
- he will ensure that the house is cleaned and shows to its best;
- he will then list and market to ensure that the house sells.
- for commercial properties, Barry will work to create an accurate income and expense statement;
- where there are tenants, Barry will can attorn the rents and property manage in the interim period.
(Note, some services are above normal real estate brokerage services and will be quoted in writing on an a la carte basis).
Power of Sale and Foreclosure, not known to the majority of Realtors who are less than 20-25 years in the business. Trust experience in this field when listing!
“I found Barry very honest, always considerate of my needs,
and acting with much integrity, he responded quickly to my questions, phone calls, e-mails, and continually kept me informed of the changing market trends.”
– Shirley R.
For the Homeowner
First, do not panic. You are not in a good place but there are solutions. As a Realtor with more than 50 years of experience Barry Lebow can help.
- if possible, the existing mortgage financing may be able to be restructured;
- if possible, new financing can be arranged to clean up the original loans;
- Barry will work with your existing lender to help you stay as long as possible in your present home;
- Barry will respect you, your circumstances and assist you wherever possible.
Note, under the law, when a house is sold under Power of Sale a lender cannot make a profit. They must pay the homeowner any excess funds once the sale closes and when all costs are added up. Surplus funds belong to the former homeowner.
You have the right to redeem the debt and to put the mortgage back into good standing. As well, if your property has sold and closed, you have the right to a true accounting of all costs. A lender cannot legally pad the bills or overpay. You have the right to challenge the costs if you believe that they are excessive and above reasonable norms.
Most traditional lenders will render true accounts. Private lenders have been known to add costs that are excessive.
Barry has the experience to advise you in this difficult time based on his involvement in hundreds of mortgage actions during his career.
What is Power of Sale?
A power of sale occurs when a mortgage is in default. After 35-40 days of missing a payment a homeowner is issued a Statement of Claim demanding that the mortgage be put back into good standing or the lender will take action to recover their money.
In a Power of Sale the lender, the mortgagee forces a sale on the open market. Most times the mortgagee sues for possession which forces the homeowner (the mortgagor) out of the property. This takes time, it requires a separate action. Some mortgagors fight eviction and if there are some strong circumstances (a relative dying at home) there may be a stay.
What Is the Procedure?
A lender gets possession and immediately orders at least one appraisal from a certified appraiser. It is prudent and many lender exercise caution and order two appraisals plus a market analysis from a Realtor. The lender is in possession but not ownership. If a mortgagor has left the house full of furniture the lender has a problem and many simply ship the contents to storage to be dealt with separately. The lender may make necessary repairs or clean up to sell the house but they cannot invest in renovations that are not basic.
A Realtor must be given directions to list the property close to the appraised pricing and in accordance with the market. A power of sale does not give the lender license to blow out the property at a bargain price. A below market sale can lead to the mortgagor suing later for an inprovident sale.
The lender has to maintain the house, which in the winter means heating. They become responsible for the insurance and other costs to keep the house on the market. They will cancel things like internet and possibly shut off the water.
Many lenders do not pay the realty taxes during their holding period but rather wait for the sale and proceeds to clean up the tax arrears. The lender has to be careful that they realty taxes are not overdue by years as the municipality can take action and sell the house under a tax sale.
What About a Tenant?
We are in Ontario and we have strict rules about the ousting of tenants, even during a power of sale. In most cases the lender, the mortgagee “attorns the rents” which means that the tenant must pay their rent to the lender, once they have legal authorization for the process. Tenants not paying rent or refusing to co-operate with the mortgagee can be taken to court but given the rules today, this can delay the sale process by many months.
What About Secondary Financing?
If a primary or first mortgagee takes over and if there are second or third mortgages registered on title the first mortgage issues power of sale to the secondary lenders as well as the homeowner. The secondary lender can either wait and hope for a decent sale to pay them out or issue their own power of sale and then start paying the first mortgagee. Being a second or third mortgagee can be risky as equity will be eaten up quickly. Some secondary lenders just surrender to the process and take their chances.
Does the Mortgagee Owe an Obligation to the Mortgagor?
Yes. They have to achieve true market value, they have to prove they conducted themselves properly when marketing the home and they have to support their actions. Should the property be sold for more than the first mortgage amount, after costs are added in (missed mortgage payments, taxes, insurance, utilities, appraisals, legals, commission) any surplus must flow back to the mortgagor. In a foreclosure the lender actually becomes an owner and owes no obligation to the mortgagor.
I am In Default on My Mortgage, What Can I Do?
If it is due to a temporary problem, you are between jobs, you got ill, maybe as a trucker your engine blew, etc. immediately contact your lender, go in, sit down. Make smaller payments to show your sincerity, if they will work with you. Some lenders are more tolerant than others as few want to issue a Power of Sale.
Next, shop around for new financing via a reputable mortgage broker.
If you need more income to survive, rent your basement if you are in a house for the income.
If you are truly in dire shape, if there is no hope, speak to the lender and accentuate the process. Talk them about a Quit Claim Deed which means that you surrender the house to them but that stops them from coming after you later for any shortfall.
If you are in the early stages of a financial problem, call in a top Realtor who will be your trusted advisor and sell your home before you lose it. Many lenders, once they know that your home is for sale to pay them off will wait and allow you to proceed provided that you are marketing the house at true market value.
You are in a tough situation. Fighting and prolonging will add to the costs of the process. Do immediate surgery, cut your losses, sell and move on. Rent if you have to, rebuild your life and strive to own a home again the future. Those who fight the process only see lawyers and others rewarded at their expense.
Barry Lebow has years of experience in the Power of Sale Process and is easy to communicate with to discuss your situation. Nothing to be embarassed about, cards on the table and let’s get your family’s needs looked after over all else.
Note: The answers herein are not to be considered independent legal advice or any other advice outside of the expertise of real estate transactions solely. Any party who wants to consider an answer herein should seek independent legal or other professional advice before proceeding.
Barry Knows Real Estate
Get in touch with Barry for answers to all your Toronto real estate questions.