Monday, November 18, 2013

Power of Sale - The Basics for Re-Selling the Property (Ontario, Canada - Sellers Only)

Once you proceed to redeem a mortgage now in default, what comes next?  A Power of Sale (POS), as noted in our prior post, is the most efficient and typically quickest means of resolving the default (aka – recovering your funds).

 A properly enacted POS should include much of the following:

·         The mortgagee (lender) has the right to re-sell the property

·          Property should be listed for sale at fair market value

·         Independent appraisals should be obtained (minimum of 2)

·         Document the marketing process (MLS exposure, ads run, signage etc.)

·         Property is Sold on “AS IS” basis with no reps. or warranties

·         Negotiate as with any normal property sale (record all offers/counters)

·         A provision in the sale agreement allowing the mortgagors (borrowers)
    ‘the right to bring the mortgage into good standing’ prior to closing

Although this last point is most often unlikely, legally you must provide for it within any sale agreement. Your lawyer will likely recommend that you attach a POS appendix to any agreement, which will not only address this issue, but also the matter of “no representations/warranties, AS IS sale etc."  This Appendix is a must in re-selling the property and serves to protect your interests with a 3rd  party buyer.

On the matter of  accounting for all costs associated with a POS proceeding, make sure you maintain a clear record of what these additional expenses are. They typically include legal fees and appraisal costs, but also can involve such other expenses as – property insurance, utility costs, maintenance/management, carrying costs, etc.  Under a properly executed POS, you are entitled to the recovery of such costs which are above and beyond the mortgage balance itself.

Best practice is to follow the clear advice and direction of your lawyer. In addition, seek out experienced commercial brokers in your area, who have an established track record in the marketing of POS properties.