Especially with the financial crisis south of the border in 2008 you have no doubt heard about foreclosures and power of sales in real estate. You can watch HGTV and listen as people get homes way below market value because all they had to do was pay the bank what they owed on it. It can be a pain but you can get some amazing below market value deals. Some here in Canada will even advertise that you can subscribe to a list of foreclosures and power of sales. Some join these lists hoping to find some amazing deals. However, what many do not realize, is that the housing market in this regard is very different than it is in the United States of America. Our banking system is more heavily regulated and so you see a lot less of these issues.
So next time you are looking at homes for sale in Barrie and the surrounding area do not expect to find a foreclosure or power of sale well below market value. Foreclosures are almost completely non-existent here in Canada. The odds of you ever finding a foreclosure are small. However, Power of Sales do happen from time to time. That’s because of someone starts falling behind on their payments a bank would rather force a sale than foreclose on the property.
To foreclose on a property it means the bank has to go through the courts to become the official owner. This costs more time and money and lenders will almost always try to avoid this. Whereas with a Power of Sale they can force you to sell if you miss enough payments. Most lenders will work with you if you are behind on payments but eventually they will force you to sell if need be.
So does that mean if the bank is owed $200,000 on a $300,000 house that they can just accept an offer of $200,000 and wipe their hands clean of the property? Nope! That’s the one of the biggest myths out there in real estate. The truth is that the bank actually has to get fair market value for the property. So if the house is appraised at $300,000 the bank has to do everything in its power to get $300,000. If, for instance, they sold it for $280,000 instead then the owner who is being forced to sell could technically sue the bank for the remaining $20,000.
Situations like this is why sometimes power of sales can be bigger headaches than they are worth to some. You have to go back and forth many times with the bank, sometimes over something as small as a few hundred dollars on a purchase worth hundreds of thousands. They have a number they have to sell for and do not want to risk getting sued so they hold out for it.
Another major issue trying to buy a power of sale property is that up until the moment you officially own the home, the current owner can repay the bank any money owed and reclaim their home. So you could negotiate with a bank, give them a deposit, agree to a closing date 45 days away and then in 44 days the owner could come up with the money. Where does this leave you? Well you get your deposit back and now you are back out looking for a home.
One benefit of a power of sale is that it usually means that you are getting a home at fair market value. The bank has no benefit to overprice a home. Any extra money they get from the sale does have to go to the current owner after all. So they price it fair and get it sold as quickly as possible so they can get it off their books.
Another important thing to note, real estate agents are not allowed to advertise that a home is a power of sale. You will find out once you start the process but beforehand its not allowed to be promoted.
So next time you are looking for a home for sale in Barrie, keep in mind that a Power of Sale is not necessarily the big bargain you were hoping for.
