Paying for a mortgage can be tricky. A simple financial misstep can easily lead to missing a few payments which can have severe consequences according to the specific terms agreed between the lender and the borrower.
When a person takes out a mortgage, it is agreed that payments must be made in full and on time according to the terms agreed with the lender. To make sure that the borrower can pay the loan, the lender will research the borrower’s financial history. Only after careful scrutiny is a mortgage application usually approved. In the event that the borrower defaults on mortgage payments, the mortgaged property is at risk of being taken over by the lender as a means to recover their loses from non-payment. The lender is then able to sell the home through a power of sale.
What is a Power of Sale for a Mortgage?
A power of sale is a clause in the mortgage contract that allows the lender to sell the home if the borrower fails to make payments in full and on time. It is often used interchangeably with foreclosure because they have very similar meanings.
What is the Difference Between a Mortgage Foreclosure and Power of Sale?
With a mortgage foreclosure, the lender can sell the home after taking over the property’s title and owning the property completely. There is no further obligation to the borrower. With a power of sale, the lender has to sell the property for the highest possible price. The proceeds will go towards the repayment of the loan and cover any fees. Any remaining amount will be given back to the borrower as the borrower remains the homeowner who holds the title to the property.
A power of sale is often considered first prior to foreclosure in the provinces of Newfoundland, New Brunswick, PEI, and Ontario. Part of the reason is because of its quicker process as compared to a foreclosure.
What to Do If Your Home Has a Power of Sale?
If you’re a homeowner who is facing potential power of sale process because of failure to address mortgage payments on time, know that there are possible ways to make things a little bit more favourable for you. Because a power of sale can often be a complicated and time-consuming process for lenders, they are often willing to look for other ways to get their money back if you are also willing to compromise.
The best thing to do if your home has a power of sale is to get in touch with your lender as soon as possible. Make sure that the lines of communication are open for you to discuss alternatives and reduce both of your losses.
Solutions for Power of Sale
Aside from talking to your lender, you can also choose to get another mortgage from other lenders. The funds from a new mortgage can be used to pay existing mortgage arrears as well as buy you time until you can get your finances back on track. Contact us at Homebase Mortgages to know more!