Buying a power of sale property: What you need to know

When it comes to buying a power of sale property, there are many different options to consider.

What exactly is a power of sale home, and what should you know before making this type of purchase? A power of sale is a legal mechanism that allows a lender to sell a property in order to recover an outstanding debt. This typically occurs when the owner of the property has defaulted on their mortgage and has not taken steps to remedy the default.

The lender has the legal authority to sell the property in order to recover the outstanding debt, and the proceeds of the sale are used to pay off the mortgage and any other costs associated with the sale. Therefore, a power of sale home is a property that is being sold by a lender or a bank, rather than the owner, due to the owner's failure to pay their mortgage.

Does buying a power of sale property usually mean I’m getting a bargain?

While on the surface, a lender selling a home may bring the perception of getting a “deal” or being able to buy the property cheaper than market value, that’s often a misconception.  When selling the property, the lender is obligated to get market value for the property, and they will try their best to get that. If the home sells for more than what is owed to the lender (after paying fees and expenses involved in selling the property), those funds are typically given to the borrower of the defaulted mortgage loan. This usually means the property will be listed with an agent as a power of sale listing and the lender will look for the best offer they can get.

What about the condition of the power of sale property?

One important thing to consider when buying a power of sale home is the condition of the property. These properties are often sold "as is," meaning that the lender is not responsible for making any repairs or improvements before the sale. This means that you will need to carefully inspect the property and budget for any necessary repairs or renovations. Sometimes homeowners who are in the process of losing their property aren’t inclined to take care of it or keep up with home maintenance and repairs.  This can mean costly repairs that may be required immediately or down the road. In a typical transaction, if your home inspection shows certain deficiencies, you may have the opportunity to negotiate with the seller for a reduction in the purchase price.  This is usually not the case when it comes to buying an “as-is” home, so having a thorough inspection by a qualified and seasoned home inspector is highly recommended.  

What else should I know about when buying a power of sale property?

Although the chances are unlikely, a power of sale can be cancelled if the borrower is able to bring their mortgage into good standing through a Right of Redemption. This can happen up to the last minute. It is important that you obtain legal advice when you're buying a power of sale property to guide you through potential issues with the property and the bespoke process.

The bottom line

Overall, buying a power of sale home can be a good opportunity to purchase a property at a lower price, but it's important to do your due diligence, conduct a home inspection, and carefully consider all of the potential risks and issues involved.  Obtaining legal advice when it comes to purchasing a power of sale property can help derisk your purchase and avoid potential costs and traps.