Complaints about the rising cost of living are as old as time itself. However, in this day and age, it isn’t just banter. Everything really is getting more and more unaffordable, and some people are really struggling. For homeowners trying to keep up with their mortgage payments, the looming possibility of a Power of Sale or even foreclosure becomes all too real.
Though these are not anyone’s favourite topics, it is critical that you know what could happen so you can choose the best and most empowered way out of a bind. In this post, we’ll talk about what a Power of Sale means and how to avoid it whenever possible.
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What is Power of Sale?
A Power of Sale can happen whenever a homeowner breaches the agreement with their lender. Falling behind on the monthly mortgage payments is the most common reason, but there are others, such as damaging the property, illegal activity, or insufficient home insurance.
Higher interest rates and rising prices combined with stagnant wages has many people struggling to cover all of the expenses of life. In some cases, a homeowner finds themselves unable to keep up. If they cannot rectify the situation, the lender may force them to sell the home to recoup their losses.
A Notice of Power of Sale is not something anyone wants to open their mailbox to, but there is no cause for immediate panic. It’s just a notice, and you will have time to make a course correction. If you can do so, the crisis is averted. If not, the bank could then issue a Statement of Claim, which sets the next steps into motion.
A Power of Sale differs from a foreclosure in that you retain ownership of the title until the property is sold. Any funds remaining after paying the lender are yours to keep. Under a foreclosure, you lose ownership completely, along with any potential profit from the sale. In other words, receiving a Notice of Power of Sale is not ideal, but it could be worse.
If you need to get the best possible results when selling your home, the posts below can help:
- Should You Renovate or Sell Your House As-Is?
- Beyond Staging: Adding the Most Value for the Least Effort
- Can You Sell Your Peterborough Home Remotely?
Try to Stay Calm
It’s normal to feel stressed – even panicked – upon falling behind and facing the possibility of a Power of Sale. Just remember that the process is long and you have time to come up with a resolution. The best way to handle the situation is to avoid it altogether if you can. If you find yourself struggling to make your payments, it may be time to reevaluate your priorities. You may find wiggle room in your budget by eliminating some wasteful spending.
If your life has changed and you simply can no longer afford to keep up with your payments, it’s best to make a plan early rather than waiting for the bank to contact you. Reaching out ahead of time to work out alternative arrangements should be your first recourse. If the lender decides to take action against you, the process goes as follows:
- If you default on your mortgage payment, the lender must wait 15 days before sending a Notice of Power of Sale.
- Once you receive the notice, you’ll have a 35 to 40-day redemption period where you can restore your account to a good standing.
- If you are still unable to pay and have not issued a statement of defense, the lender could then go to court to proceed with an eviction and list the house on the MLS®.
Each of these steps takes time, and the proceedings can be expensive for the lender. This is one of the reasons most lenders only use either Power of Sale or a foreclosure as an absolute last resort. It’s actually in the best interest for everyone involved to come up with an amicable solution.
If you must move, one of the first decisions is where. The posts below can help you find the best value:
- Peterborough Vs Barrie: What’s the Best GTA Alternative?
- Peterborough vs. Other Small Cities in Ontario
- Rural vs City Life: What Should You Choose?
The Value of Early Action
The time to act is as soon as you find yourself struggling rather than to wait until your lender contacts you about a delinquent account. Since they likely want to avoid a Power of Sale situation as much as you do, they may be willing to work with you if you demonstrate good faith.
If interest rates have dropped, you may be able to refinance your mortgage or work out an alternative payment plan, such as extending your amortization period. If all else fails and you don’t want a Power of Sale on your record, you may want to sell your home before it becomes a possibility.
Selling of your own accord will save you the legal fees associated with a Power of Sale. You can sell on your terms, and a local real estate agent can walk you through the process and guide you in all the ways you can maximize the value of your sale.
With the transaction behind you, more options will become available. You might rent until you rebuild your savings. Alternatively, you could choose to buy a smaller home or condo, where you can still create equity while living a more affordable lifestyle.
A looming Power of Sale can feel overwhelming even if it never comes to fruition. The important thing is to understand that you have options, and support is available. With the right help and guidance, you will get through this and soon be on to a brighter path.
Do you have questions about buying or selling in Peterborough or Kawartha Lakes? Our experienced Peterborough real estate agents are here to help. Reach out to team@jeffandkatie.ca or call 705-243-9797 to connect with us today.
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