When you take out a mortgage, you agree to repay the lender on an approved schedule. If you default on a payment, this may trigger a “power of sale”. Receiving this type of notice can be alarming as you’re in danger of losing your home. However, there are steps you can take to satisfy the situation and retain ownership of your home.
A power of sale allows the lender to sell the home and recoup their investment if the homeowner fails to make payments or breaches their contract in some way. This clause is usually written into the paperwork, assuring the lender that the loan will be repaid one way or another.
Typically, the lender would communicate to the homeowner through their lawyer, letting them know they have failed to meet their obligation. After 15 days, a notice of sale under mortgage is issued and the borrower has 30 days to rectify the missed payment. If the default has not been corrected after the 30 day period, a statement of claim is issued to all parties (home owner, other lenders, bank, etc) listed on the title. The lender then follows a legal process for taking possession of the home to be able to sell it and get the loan back in full
A power of sale is similar to a foreclosure but not the same. A foreclosure requires the lender to sue the borrower in court. When a home is in foreclosure, the deed is transferred to the lender allowing them to sell the home as they choose. If the sale does not cover the cost of the foreclosure process, the borrower is responsible for repaying the deficit.
A power of sale is more streamlined and does not require going to court. In this situation, the borrower has the opportunity to repay their debt up until the point that the house sells. The house should be sold for “market value” and any remaining funds (due to equity or appreciation) remaining shall be given to the borrower.
When issued a power of sale, the best action is to speak directly to the lender. The power of sale process is expensive and time consuming and most times the lender would prefer to just be repaid what they are owed. If the missed payment is due to an unforeseen circumstance, such as a job loss, illness or injury, the lender will probably work with you to get back on track and not pursue the power of sale.
However, if this is not possible or the lender is unwilling to work with the borrower to rectify the situation, there are still other avenues to explore. It is possible to find alternative financing. In this case, a new lender would pay off the existing mortgage and you would then have a new mortgage with a new lender. This option may allow you to spread the mortgage out over a longer term, lowering your monthly payments.
If your credit score is not ideal, it may be necessary to seek a mortgage from a subprime or private lender. Typically you will pay higher interest rates, but if successful, you will keep your home.
In this scenario, it is important for the borrower to reflect on their financial situation and examine the root cause. You may get a second chance, but you will not get more opportunities to default. Creating a budget will help you to understand how much money is coming in and going out. This is the time to get your finances in order and stick to your plan. It may be appropriate to speak with a credit counselor.
Working with a broker will ease your mind as they have the knowledge, experience and expertise to guide you through the process. They understand all of the details in your mortgage agreement and can help you find a solution that works for your unique situation. A broker will be able to effectively negotiate with lawyers, banks, lenders, etc. to find a resolution.
In addition, mortgage brokers are connected with a wide network of lenders. So, if you require a private or subprime lender to stop the power of sale, they will have access to a number of options.
Armed with the proper documents, you can stop the power of sale and stay in your home. Some of the documents required include:
A power of sale is not an ideal situation for lenders or homeowners, but sometimes necessary for lenders to recover what is rightfully theirs.If you find yourself faced with this situation, speak with the lender. Work with them to arrange a repayment schedule that works for both of you. However, there are other options if this does not appease the situation. If you would like to know more about how you can navigate a power of sale, contact us. We will review your particular circumstances and help you find a solution.