Toronto Real Estate: Buying a Power of Sale

Living in Toronto“I want to buy a cheap property, a distress sale, Estate Sale or a Power of Sale.”

I cannot tell you how many times I have heard this statement. If a property is in distress, it means that it is hard to sell to begin with…why would that be a good buy? There is one location near me that I have watched 5 or 6 restaurants go into and close. Why does the next buyer think they will do better?

Estate Sales  are often very overpriced because a lot of people are depending on the outcome and are fighting to get the highest price possible…they seldom sell for under market and remember there are usually no warranties that would run with the house because the owners are not alive anymore…

If you are considering buying a Power Of Sale, there are some important issues that you need to consider:

First, there is a big misconception that because the property is “Under Power of Sale”, that the seller is selling under duress and will accept less than market value. In reality, the Seller (often a Bank or Trust Company) is under strict instructions that the Property be sold for market value, otherwise the Mortgagor may be able to sue for any money that they can prove has been left on the table.

Secondly, the Mortgagee will make no representations whatsoever as to the property and the inclusions…it is definitely “Buyer Beware”.

Thirdly, there may be judgments against the Mortgagor that may cloud the title and you need to be prepared to be patient if you are on any deadline to close the property. You may find that you can have possession and start to live in the property but you may not have title for a while and you may have the odd surprise for years after you do own it. In the end, however, it is in every one’s best interest that you close and get a clean title.

Fourthly, because of the time that your lawyer will have to spend getting you clear title, you may want to make sure that you are dealing with a lawyer that has done Power of Sale properties before and knows what to expect and how to guide you. Get financially prepared…the lawyer will be spending more time for this unusual closing and their bills will reflect that time.

And lastly, as my friend Helen Smith, a Realtor in Durham Region noted, “In most cases, the original seller can redeem up to closing. We have seen this happen a few times in the last couple of years. Some buyers have been left without a home!

Don’t let my diatribe scare you off.

Just be aware that “Estate Sales” and “Power of Sales” have to be approached with open eyes, and lots of patience…

6 Responses

  1. Reg McLean

    Great article Richard! You covered all of the bases! Every year I get clients wanting to purchase a power of sale and I have to patiently repeat what you have so clearly articulated. I don’t know where the public got the idea that a power of sale is a bargain.

  2. Garry Anderson

    Bang on Richard, I sell a lot of POS’s.

    They are generally cheaper but for good reason. The risk that you’ll actually get what you think you are buying plays into it. I’ve seen POS’s sold in great condition, that on closing were stripped of cabinets and all the copper. Also, the owner can redeem the property right up until the new buyer takes possession and puyll the rug out from under your plans.

    Also, most POS’s are in terrible condition and need $10’s, even hundreds of Thousands in work. So although you may get a property for $60,000 less than the comparable non-POS, it will most likely cost you more than $60,000 to bring it up to the same standard.

    However, if you have a lot of cash, can close quickly, and have a crew of trades available for a quick turn around, there’s a lot of $ that can be made from these properties.

    The key is to have an agent that has a lot of hands on general renovation experience. This special skill set can help you spot and evaluate the good ones but most importantly, can steer you clear of the lemons. You can do 5 good flips and lose it all on one bad one.

  3. Richard Silver Post author

    Great Comments Gerry and Reg. I am always surprised by the myth that some consumers share that if it says “Power of Sale” it is a huge advantage for them!

  4. karim kanji

    Richard,

    Thanks for clearing this up. This is the sort of article that the general house buying public needs to read. With the news of what’s happening in the States, many people think that deals are to be had.

    What happened in Detroit with the Silverdome selling for $500,000 won’t happen here with residentials.

    Cheers!

    KK

  5. Richard Silver Post author

    At present there is a very small percentage of properties that are in default in Canada. We have much stronger banking laws and the lack of interest deductibility in Canada gives us a climate where the normal consumer does not finance as much. The benefit is that we do not get into the same issues.

  6. Vincent La Fiura

    good article Richard, its a shame that the public actually believe that their is benefit when buying a power of sale home. I have written many articles relating to the same subject.

    link to mytorontorealty.com

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