Difference Between a Power of Sales and a Foreclosure?

Difference Between a Power of Sales and a Foreclosure?

Foreclosure or power of sales? It’s easy to get the two terms mixed up.

Although both can result in losing your home, the two are not the same. In Ontario, power of sales are much more common, as opposed to the frequent use of foreclosures in the United-States.

Let’s examine the difference between the two terms and see what impact they have on homeowners struggling with these difficult situations.

What Is a Power of Sales?

In certain Canadian provinces including Ontario, power of sales are how lenders typically recover their money if a borrower defaults on their loan. Lenders prefer it to a foreclosure since it’s faster and avoids having to go to court. A power of sales “allows the lender to sell the property if the mortgage payments are not met, thereby permitting the lender to repay the mortgage debt.” (Investopedia)

To start the process, the lender would first issue a Notice of Default. If the outstanding mortgage payment isn’t received within 30 days, they may then issue a Statement of Claim, and finally an Eviction Notice.

During a power of sales, the homeowners retain ownership of their property up until it is sold. If there is money left over after the mortgage and expenses are paid in full, the funds are given back to the original owners. The lender can’t make a profit off the sale of the home – they can only recover their loan and costs. On the other hand, if there is a loss, it too is the responsibility of the original homeowners.

What Is a Foreclosure?

In a foreclosure, the process is different. In this situation, the lender takes legal action against the borrower who has defaulted on their payments.

A foreclosure is “a situation in which a homeowner is unable to make full principal and interest payments on his/her mortgage, which allows the lender to seize the property, evict the homeowner and sell the home, as stipulated in the mortgage contract.” (Investopedia)

Once complete, the lender becomes the legal owner of the property in question. The house’s title is registered in the lender’s name. They may then do as they wish with the property.

Usually, lenders will sell the home. If there is a profit or a loss, it is the sole responsibility of the lender, who now owns the property. The former homeowners have lost all rights to any equity or profit.

Which is Better?

In Ontario, lenders prefer the simplicity of the power of sales process. It allows them to get their money quickly, without being responsible for any losses.

For homeowners, neither is good news. Fortunately, there are steps they can take to stop both a power of sales and a foreclosure. A mortgage broker, together with the owner’s legal team, can often find a solution. They can file the appropriate forms to have enough time to repay the outstanding debt or apply for a new mortgage.

For help with a power of sales or a foreclosure, contact one of our licensed mortgage brokers. We can walk you through the process and help you keep your home.