If you’ve ever come across a ‘For Sale’ sign that reads ‘Power of Sale’, it means the homeowner has defaulted on their mortgage payments and the lender, which is usually a bank, has put the house up for sale in an effort to recoup the balance of the debt.
It’s a provision most lenders include in the legal paperwork mortgage holders sign when they purchase a house. And it’s a measure that lenders insist on, to protect their financial investment.
The whole process for the bank to take back the house, so that it can sell it, can take less than three months.
Once a mortgage is 15 days in default, the lender issues a Notice of Sale to the homeowner with a redemption date between 40-45 days.
If the borrower comes up with the arrears plus costs before the redemption deadline the Notice of Sale is voided.
If not, the process moves to the next step, the Statement of Claim, which asks the courts for the right to take possession of the property and sell it to recoup the debt.
The borrower has 20 days from receiving the Statement of Claim to issue a defence, or 30 days if they issue a Notice of Intent to Defend, but there are few defences available to a default on a mortgage.
When the lender gets the OK from the court, the sheriff can move in to evict the homeowner in default so that the property can be sold.
If the sale proceeds are less than the mortgage debt, the borrower must pay the difference. If the sale produces a surplus, the lender must return those funds to whomever it is due, whether that be another creditor who has staked a claim to the proceeds through a lien or an execution registered on title, or to the borrower.
The lender has a duty to obtain the best price available for the property, but not necessarily the absolute best price that the market will bring.
Once the lender and all other creditors have been paid, the property is transferred by deed to the new purchaser.