Why Procure a Power of Sale Appraisal?

In Ontario, Power of Sale is a legal procedure that occurs when a mortgage lender can sell a property when the borrower defaults on their mortgage payments or breaches the mortgage terms. It’s important to note that the Power of Sale is different from foreclosure, which involves the lender taking ownership of the property. Foreclosure and power of sale are two different legal processes that lenders can use to reclaim property when borrowers default on their mortgage payments. While both processes result in the sale of the property to recover the debt owed, there are significant differences between them, including the legal procedures involved and the rights of the borrower.

Foreclosure is a court-supervised process initiated when a lender files a statement of claim in court. The borrower has the right to defend against the foreclosure action, but if the court grants the foreclosure order, the property is sold through a court-approved sale. Earnings from the sale are used to pay off the outstanding mortgage debt, and any surplus is returned to the borrower.

When a Power of sale clause is included in a mortgage contract, this allows a lender to sell a property without court involvement. The process begins when the borrower fails to meet the terms of the mortgage agreement either by failing to make one or more mortgage payments, or there is a breach of a convent in the mortgage agreement. This includes failure to insure the property, failure to pay realty taxes, purposefully damaging the property or using the property for an illegal use. The lender must notify the borrower in writing with a Notice of Sale and provide an opportunity to resolve the default. This notice informs the borrower that the lender intends to sell the property to recover the outstanding debt if the borrower is unable to pay off the debts in a specified period (usually 35 days). If the borrower fails to pay off their debts, the lender can proceed with the sale of the property through a real estate agent or public auction. The income from the sale is used to pay off the outstanding mortgage debt, with any surplus returned to the borrower.

Why Procure a Power of Sale Appraisal?

Lenders should involve an accredited appraiser to complete a formal and thorough appraisal of the property being sold. Having a formal power of sale appraisal is crucial for multiple reasons:

Determining Fair Market Value: A power of sale appraisal provides an unbiased estimate of the property’s fair market value. This valuation helps ensure that the property is priced accurately, maximizing the likelihood of selling it for a fair price, avoiding the risk of undervaluing or overvaluing the property, which can affect the sale process and the lender’s ability to recover the outstanding debt.

Compliance with Legal Requirements: In Ontario, lenders are required to obtain a current power of sale appraisal of the property before proceeding with a Power of Sale. This ensures that the sale is adhering to legal standards, protecting the interests of both the lender and the borrower.

Demonstrating Due Diligence: Obtaining a power of sale appraisal demonstrates that the lender has conducted proper due diligence to determining the property’s value before selling it. This can help protect the lender from allegations of unfair practices or negligence and help to ensure transparency and reassurance to potential buyers.

Negotiating Power: A power of sale appraisal gives the lender leverage during negotiations with potential buyers, providing a solid and defendable justification for the asking price.

Minimizing Risk: A power of sale appraisal helps minimize the risk of financial loss for both the lender and the borrower. By accurately assessing the property’s value, the lender can ensure that the income of the sale is sufficient to cover the outstanding debt and any associated costs. For the borrower, knowing that the property is being sold at a fair market value can provide reassurance that they are not being unfairly disadvantaged in the Power of Sale process.