Power of Sale in Toronto: Four Things Buyers Should Know

There was a time when we went to a bidding war for our clients almost every day. The market has changed a lot since then, and the term that keeps coming up now is power of sale. Someone may have told you about a house that is being sold this way, so let me explain what it means, how it is different from foreclosure, and where the market stands today.

I am Moe Asgarian, a senior real estate broker in Toronto, ranked number 47 worldwide at RE/MAX. A new report says the number of homes coming to market under power of sale in the GTA has grown fivefold over the past three years. That number matters, and here is why.

What power of sale actually means

In plain terms, power of sale is the situation where the homeowner has lost the right to sell their own property, and the bank or lender steps in and lists it for sale. One important point: in Ontario we do not have foreclosure, we have power of sale. With power of sale, the court gives the lender permission to sell, but the owner's name stays on title. The home remains in the borrower's name right up to closing day, while the bank controls the sale. If the home sells for more than the debt, that extra money goes back to the seller, the original owner.

Power of sale vs foreclosure

Foreclosure happens mostly in the US. The bank goes to court, puts the property in its own name, and decides how to sell it. Once title transfers, the person is no longer the owner, so the borrower's debt is wiped out. The catch is that if the bank sells for more than the loan, that surplus does not go back to the borrower. The gap between the loan amount and the sale price stays with the bank. Power of sale does not work that way. The owner keeps title and keeps any surplus over the debt.

Four things to check before you buy

First, and this one is important, the original owner can settle the debt and take the home back right up to the closing day. So a buyer can be days from closing and suddenly lose the deal. Second, the bank has a duty to protect the borrower's interest and not sell the home cheap, so the price usually lands at market or a little above. Paying that price up front is rarely worth it, so look for a power of sale that has been on the market for a few months. The bank reviews the price every 30 days and drops it if the home has not sold, and after a few months you may find one priced 10 to 15 percent below market. Third, you are buying as is. The bank gives no representation or warranty that the home is sound or that the appliances work. To lower that risk, do your own inspection and bring a home inspector so you know exactly what you are buying.

Why these listings are rising, and where the deals are

The good news is that because of all these hurdles, very few buyers go after power of sale, which can create a real opportunity for anyone looking to buy below market. Just make sure you work with someone experienced, because this is not an ordinary purchase and it has a lot of hidden angles. My team and I have sold several bank power of sale homes over the years, including 47 Acken Mill earlier this year, and a property at 6171 Kaneff Drive in Mississauga, a hotel we listed at $5,200,000 that recently sold conditionally. We also have an apartment listed at 357 Derry Road East, unit 311 in Mississauga, with three more power of sale listings coming soon. As for why these numbers keep climbing, the reasons are clear: higher interest rates, heavier payments for anyone on a variable mortgage, prices that have stayed flat or softened, and a soft job market. It is a sign of a market we would rather not see too much of.

If you'd like a straight answer for your own situation, fill out the form below and book a free consultation. Stay well and take care.