You can sell your home during the power of sale process to avoid consequences like a bad credit rating by listing it yourself or using a licensed real estate agent. If the process goes through to the end, you risk losing your home equity.
Not only that, but many homeowners don’t see any money from the sale of the property if a power of sale goes through. Proactively managing the sales process before a lender takes possession can minimize costs.
Understanding the Power of Sale in Ontario
Power of sale is a standard method that lenders use to recover their principal, interest and expenses when a mortgage has been defaulted on. A strict legal process is involved at the end of which a lender can sell the property. A less frequent tool used in Ontario is foreclosure. That process is more time-consuming and involves more legal steps.
The power of sale begins when the terms in a mortgage agreement have been broken. That’s usually after one or more mortgage payments have been missed. However, a borrower can also default when they breach a covenant in the agreement. Beyond missing payments, those breaches can include:
- Not insuring the property
- Using it for illegal purposes
- Not paying the property taxes
- Damaging it on purpose
Before a homeowner can be evicted, several steps are involved. The first step is a Notice of Sale. Then, there is a waiting period when the borrower is given a chance to pay the entire debt off or bring the mortgage into good standing.
A Statement of Claim can be issued next, followed by a default judgment and a Writ of Possession. At that point, a date can scheduled to evict the homeowner and their family.
When Can a Lender Start a Power of Sale?
Where one of these breaches has occurred, the lender needs to give the borrower a chance to fix the default. After the lender waits 15 days, a Notice of Sale under a mortgage can be delivered.
Before more steps can be taken, there’s another waiting period of 35 days or 40 days if a married couple lives and owns the property.
Of course, if you’re a homeowner facing a power of sale, the idea is to stop the process before it reaches this stage.
Why Selling Before Power of Sale Benefits Homeowners
If you’re struggling financially, selling your house before a power of sale begins can help you control the sale price, pay off the mortgage, and keep the equity that’s left.
Here’s why that’s a good idea in some situations.
The former homeowner only gets the money left over after all the other parties have been paid during a power of sale process. The lender’s expenses include real estate agent fees, real estate lawyer fees, and other related fees and costs. Then, the lender gets paid the principal and interest plus any other monies to which they’re entitled. In some circumstances, lien claimants like contractors who haven’t been paid, other mortgagees, and executive creditors like the Canada Revenue Agency are also in line.
Homeowners who are going through a power of sale also need to consider how this will affect their ability to get more credit.
Credit Score Damage
If a power of sale goes completely through and you lose the property, your credit score will be damaged. Equifax considers on-time payments to be one of the strongest predictors of people’s ability to pay their loans. It’s important to understand that credit scores are based partially on your credit mix. The credit mix is all about the different types of accounts you have, including credit cards, loans, and, of course, mortgages.
A power of sale is a matter of public record, and it can lead to a variety of cascading problems, including higher insurance premiums and issues getting a job that requires a financial background check.
Being proactive about selling your house can help you avoid the listed problems.
How to Sell Your Home Quickly During Power of Sale
There’s time to sell your house, and the homeowner has the right to do it during a power of sale. For example, even the first part of the process, the Notice of Sale, allows for a 35-day waiting period before any further steps are taken. That increases to 40 days if the house is occupied by married people.
Sell It Yourself
You need to move quickly if you’re trying to sell your home during a power of sale. One option is to sell it yourself. You won’t need to pay a real estate agent a commission, but you’ll take on all the negotiating responsibilities with agents and buyers. You’ll also need to show the place yourself. This option can take up a lot of time and slow down sales.
Another option is to sell it for below market price. If a bidding war starts, you’ll potentially get more for it because the lower sale price should attract more prospects.
Use An Agent
A real estate agent brings a network of prospects and proven marketing strategies to the table. The average real estate commission in Ontario is 5% as of November 2024. That money is split between the sellers’ and buyers’ agents, with each getting 2.5%.
The Canadian Real Estate Association sets standards for professionalism in the industry with a code of ethics and business practices. However, market cycles can affect how long it takes to sell a home, even with these professionals’ help.
The good news is there’s another choice when you’re looking to avoid a power of sale.
Alternative Solutions to Avoid the Power of Sale
Private lenders offer a quick solution with a streamlined process. They offer a variety of alternative loan products that accept applicants with low credit scores who are in the midst of a foreclosure or power of sale.
The products they offer, like second mortgages, are based on equity, not credit scores. They also accept non-traditional income sources like contract and gig work. Getting one of these products, like a debt consolidation loan, can free up the money to stop a power of sale process.
These alternative solutions provide quick approvals and flexible terms so homeowners can bring the mortgage out of arrears by covering missed payments.
It’s important to keep in mind that these solutions are temporary, and interest-only payments don’t solve many low-credit financial problems. Although one of these loans will stop a power of sale process, borrowers need to have an exit strategy like refinancing eventually.
How Mortgage Broker Stores Can Help
Mortgage Broker Store can help people in the middle of a power of sale with a quick approval process and timesaving application procedures. We focus on the equity you’ve built up in your house instead of more strict requirements like a credit score.
Our team consists of a father-son duo: Ron Alphonso and Jonathan Alphonso. Combined, they have decades of experience in dealing with real estate matters. We specialize in outlining possible solutions for people in power of sale situations and recommending solutions. While many homeowners aim to keep their home, selling is sometimes the best option when mortgages aren’t feasible. If you need help or advice with your mortgage situation, feel free to reach out directly at 416-499-2122 or ron@mortgagebrokerstore.com.