Many real estate buyers have this misconception that all properties being sold under “Power of Sale” are being sold under market value and represent a good opportunity to get a great deal. A property being sold under the “power” of the bank is most commonly referred to as a “Power of Sale”. Some people also refer to it as a “bank sale” or “foreclosure”. None-the-less, the scenario is usually quite similar, there is a default on the mortgage loan and the bank (or sometimes the mortgage insurer) exercises their right to sell the property.
It is important to remember that the bank has a legal obligation to list and sell the property for fair market value. If they do not, the current owner could pursue the bank for the shortfall if they can prove there was one. In order to ensure that the home gets the money it deserves, the bank will have appraisals done on the property to justify their price point when listing. Just like with home owners, if the property sits on the market for some time, the bank will then start to lower the price accordingly until the property is sold.
In the case that you are able to purchase a Power of Sale property for a great price, there are other risks that the buyer will be taking on. Sometimes the home is in disrepair, which is reflective in the price. Usually, the bank will include their own schedule of clauses in the offer that are designed and written for the protection of the bank. For example, the bank will likely not include any chattels in the offer (appliances, window coverings, fixtures etc.), as they do not own them and cannot guarantee they will be there or even working upon closing. They will also give no warranties as to the state or condition of the property whatsoever. The schedule that the bank includes in the offer is usually quite complex and sometimes concerning to the buyer, as it should be. One very important clause that will be included in this schedule will discuss the fact that the current owner, at any time before closing, can bring the mortgage back in good standing and regain their right of ownership and occupancy over the property, at which time the current sale will become null and void. This does not happen very often but it is something the buyer must be aware of. In any case, it is strongly recommended that a lawyer review the contract for the protection of the buyer.
There are a lot of complexities that come with purchasing a power of sale property, and it is vital to have an experienced Realtor assist you through the process. In addition, you will want to have your lawyer review the offer upon acceptance, as Realtor’s are not in a position to give you legal advice. In any case, a Power of Sale property can look like a great deal on paper, but it is important to go see the property and understand why it is priced the way it is.