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Are Power Of Sales Really A Bargain ?

There is a public misconception that buyers can get "a steal of a deal" on a "Power of Sale" property. According to the Mortgages Act Ontario http://www.canlii.net/on/laws/sta/m-40/20080821/whole.html the guidelines for handling Power of Sales is very specific.

Once the lender or financial institution has taken over the property, they must sell the property the same way as any other property. It is usually listed with a REALTOR on mls for the appraised market value. They have to prove that the home is exposed to the open market for the proper amount of time to find a buyer and obtain market value.

The lender has complete control of the negotiations. Neither the Listing Agent, the Buyer Agent or the buyer will have much say and the offer process is done via fax.

The lender usually asks for between 48 hours and 72 hours irrevocable to review the offer. They will only negotiate during business hours and not on weekends. There often seems to be no sense of urgency on the lenders' part, even though usually the property is empty at this point, and the lender is paying for the heat, hydro, taxes, etc. This is simply a business decision for the Mortgagee, unlike when you are negotiating with a seller where there is emotional attachment. Negotiations can drag on with a power of sale and the buyer may potentially miss out on another suitable property that comes on the market.

Buyers must be aware that when buying a power of sale, the Mortgagee offers the property in an "as is" condition. There are also no warranties or guarantees provided. There are usually many schedules attached by the Bank, which I recommend the buyer have their solicitor review.

When the property is first listed, it is very unlikely any low offers will be considered. The Mortgagee must be able to prove they did their part to get the highest and best price. After a certain time on the market, the Lender may reduce the price to obtain a suitable offer. At this point the Lender usually is willing to negotiate a little more. Banks and financial institutions don't want to be in the real estate business. Inventory properties must be heated, cooled, winterized, cleaned, etc.

Once a power of sale is sold, any equity leftover after the mortgage loan is paid back to the lender, is returned to the mortagor (borrower).

So are there really any deals out there with power of sales? Not usually when they first come on the market. Perhaps, if the property languishes on the market for a few months but in a seller's market as we are experiencing in Oakville right now, power of sales are even getting multiple offers. When inventory is low, everything sells.

It is very important that a buyer obtains a building inspection on a vacant power of sale property . Often times the home has not been maintained properly prior to becoming a power of sale and as mentioned there is no recourse after closing.

When people ask me if there are any bargains out there, I tell them to consider all properties that meet their needs. If a power of sale falls in that category, they can definitely look at it. There are risks involved though. In a seller's market there are no steals. Oftentimes there are not even any deals. Just because a home is listed as a power of sale does not mean the bank is going to "give it away."

I feel it is important for REALTORS to educate buyers about power of sale properties instead of giving the impression that power of sale properties are available for a cut rate price.

Jenny Kotulak Broker - RE/MAX Aboutowne Realty Corp. Brokerage, Oakville, Ontario 905-842-7000

www.oakvilleontariorealestate.ca

Posted by Jenny Kotulak Oakville Real Estate on 11/08/2009 10:56 PM

Comments (20)

Foreclosures and the Banks in the ActiveRain Channel

power of sales, foreclosures, oakville real estate, jenny kotulak broker, bank sales, sellers markets

Originally posted at: Oakville Ontario - Real Estate - Real Life: Are Power Of Sales Really A Bargain ?

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20 Comments on Are Power Of Sales Really A Bargain ?

NOV

Jenny, we are still having a buyer market here, I am glad you have a seller market already. We have some good deals sometimes, we still have plenty of inventories on the market. Our sellers have to be serious in negotiating if they want to sell their house, or buyer will say next.

NOV

Jenny - Excellent post about Power of Sales in Ontario. Properties are usually sold under property of sale provisions rather than foreclosure provisions in Ontario because the power of sale rules are much easier to handle and the timelines are much shorter. The rules in Ontario (and I believe throughout Canada) are considerably different than in the USA>

Hi Jenny... I enjoy how your "about" posts are always so comprehensive, yet easily understandable. Great job with a challenging topic!

Jenny,

For a long time, there has been a misconception about the power of sale. The deal if any is pre-foreclosure or pre-power of sale. Here the owner can enter into a favourable deal. Once it's gone, it's fifficult.

Brian

Hi Rita, we had a buyer's market this time last year until about May of this year then the buyers came back and we had less inventory. I prefer a balanced market.

Hi Marc - Yes, there is a difference between Power of Sales and Foreclosures. Although with a Power of Sale the owner has the ability to redeem themselves before closing, I've yet to see it happen.

Thanks Steve - being a short sale specialist you know all about the difficulties of the situation. You must be extremely patient.

Hi Brian - I find that when a property is on the verge of going power of sale the sellers often have the property listed too high in the hopes of getting as much money as possible.

NOV

I think we have a learning curve here with the difference in terminology. I think I got most of what you were saying. Anyway I too wish we had a more balanced market here. It will be some time for us as we are one of the hardest hit areas for foreclosures in Florida.

Interesting post. In our area, we see foreclosure sales or short sales but not power of sales. Buyer learning curve is the same - low end properties are at a premium right now and the banks are not giving them away. Buyers are swarming on houses like ants on honey around here and the number of offers submitted within 1 day are astronomical. Now, if that would only happen on the mid - high range everyone would be happy!

We have the same issue here with REO properties. People think they can just snag a bargain, but the get lots of offers.

It never ceases to amaze me the way Power of Sale listings are perceived by the general public. Many buyers will initially ask me to send them only Power of Sale listings because they think they can grab a "deal".
It's our job to educate these buyers on what a Power of Sale is and how it works. I, too, tell them to consider all properties that meet their criteria -- and if one is a Power of Sale, then bonus for them. Great post!

Jenny -

Your post is reminder that not only is the Canadian verbiage different than in the states your processes are drastically different, too.

Jenny, over the last few years I have not seen a great deal yet with a power of sale. Fortunately in London Ontario we have not had a lot.

I have represented both sides, either for the buyer and as the listing brokerage and if anything, it is far easier dealing with one family to another than dealing with a lender.

I was a Realtor in Canada from 1987 to 2001. Now in the SouthEast USA since 2004. I have to say the Canadian system is WAY more efficient, and staright forward. That is why, perhaps, here in the US, there's such a big housing meltdown.

When things are too complicated they get messy. For example, US lender rarely hold the "note" or collateral here after they originate the mortgage; they end up selling it to investors and the those investors often have no clue about what they got "into". That's why things are all over the place with different lenders, mortgage servicers, the foreclosure/short sale process, etc. It "chokes" the real estate market and the poor sellers who got stuck in the rut.

I sold many Power of Sales in Canada and am currently dealing with short sales and foreclosures here. In both systems, these truly are not a bargain as they have to go "through a process", there's competition from bargain hunters, and finally, you have to have a sharp eye to by a home in "as is" condition. You may be getting in over your head with repairs that add no value to the home, and then end up going over market value.

Also, in a soft market like we have here, a Foreclosure lowers the value in the neighborhood (neighbourhood ), so the end result is the bargain ends up being a home "at market value".

Buyer beware. And, agents must stay on top of things and educate buyers.

Sounds like you state does not do foreclosures like Georgia.

In Ga. when the borrower gets behind all the lender has to do is send them notice and advertise in the legal organ/news paper for the county the property is located. After it is advertised in the paper for four weeks it is sold on the court house steps the first Tuesday of the following month.

If no one bids the starting bid then it will be sold to the lender. It is then a REO and the former owner has no right of redemption and will be evicted. The lender then will list it with a broker and sell it.

Incredibly comprehensive post. I love reading about the issues you are facing in Canada.

Jenny,

Fascinating!

I am a REALTOR in the San Francisco Bay Area. The market conditions that you cite, the procedures that you mention for selling properties that have been foreclosed upon, the desire of the buyers...no, the belief of the buyers...that there are great deals to be had are all familiar to me because we have had similar experiences in our market.

I think our market and yours are in different phases of the great real estate readjustment that we are all going through. We, as agents, are sharing many new experiences in our businesses. Our markets will continue to readjust for several years to come. The faster we learn to deal with these changes, the faster we will be able to educate our clients to how the market works.

Real estate is local, but many experiences in real estate are shared across both of our nations.

John Juarez, REALTOR

Windermere Properties of the East Bay

John@CarlMedford.com

510-673-0686

Hi Jackie, I would hope that there would be some great opportunitie to buy in Florida. All those snowbirds who vacation there every year. My parents are going to be renting in Fort Myers for 2 months this winter.

Hi Catherine, I guess it's just the difference between the American and Canadian process of taking over a home, usually that has no equity in it. Our banks had much stricter qualifications for mortgages so we don't see short sales and in our town, very few foreclosures or power of sales.

Hi Gene, It bothers me when agents place ads asking people to contact them for lists of foreclosed properties. They are leading people on to believe that they can snag a great deal. Then they pull the bait and switch.

Interesting post. The markets vary between the laws of the juristiction.

Hi Sara - thanks for echoing my comment to Gene above. It's so nice to see someone who is willing to educate the misled buyers.

Hi Jim - we are so different and yet the same, eh?

Hi Ty, I just spent a week and a half working on a power of sale, under competition. Not fun for anyone. The RBC rep had no sense of urgency whatsoever and had no concept of "time if of the essence". I'm glad we don't have many in Oakville either.

Hi Athina, I'd say thanks for your comment but I must say thanks for your blog post as you put so much effort into your comment. You are right about the new sale prices creating the new market value. I don't know if I would have the patience to work with all the obstacles and challenges you are facing in many states.

NOV

Wow Alan, that is very scary. I must admit that the banks here in Ontario are very good about helping people NOT lose their homes. Especially if there is equity in the home. They will reduce the mortgage payments, increase the amortization length and do whatever they to help the owner not lose the house.

Hi Marian - I find it interesting to watch the markets in the U.S. also. I hear members here say they are in very soft markets and others are competing again. Very diverse markets across your great nation.

Hi John, you are so right that we share similar experiences. I read them all the time here in posts. Why is it the banks and governments that tend to muddle things up? I still don't know how things got so bad for some States.

Hi Mike - I think a lot of the problem must stem from buyers putting zero percent down payment. That's fine if the market is on the rise and you are gaining equity. But if the market goes flat or the homeowner loses their job trouble looms.

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