Everything you need to know about Power of Sales.
Understanding the process, benefits, risks, and legal considerations is crucial. Buyers should work with experienced realtors to navigate these transactions effectively.
When a lender initiates the power of sale process due to a borrower's default, they must provide a Notice of Sale. The lender can issue and serve a Notice of Sale 15 days after the default has occurred. This notice gives the borrower a period, usually 35 days, to redeem the mortgage by paying off the arrears and any costs incurred by the lender. This is the first step for a lender to commence the sale of a property under power of sale.
Redemption Rights: During this period, the borrower (and any other person with an interest in the property) has the right to redeem the mortgage. Redemption involves paying the full amount due under the mortgage, including the principal, interest, and any additional costs.
Calculating the Amount: The borrower needs to determine the total amount required to redeem the mortgage. This includes the outstanding mortgage balance, accrued interest, legal fees, and any other costs associated with the power of sale process.
Payment: The borrower must pay this amount in full to the lender within the redemption period. Partial payments are typically not accepted to halt the power of sale process.
The likelihood of a redemption prior to the closing date is rare. Why? If the property owner had issues paying their mortgage on a regular basis, how are they going to find the funds to redeem in its entirety. That being said, purchasers need to be aware of the rare likelihood. If a redemption occurs, the new purchasers receives all deposit back, without penalty.
A judgment is a formal decision made by a court regarding the legal matters brought before it. In the context of a power of sale, it is typically ordered after the ‘notice of sale' and may involve various issues related to the enforcement of the mortgage, the validity of the sale, the amount owed, the conduct of the sale, adjusting the redemption period, awarding damages or issuing injunctions, and the rights of the borrower and lender.
Once a judgment is issued, it is legally binding on the parties. The party whose favor the judgment is made can take steps to enforce it if the other party does not comply. Enforcement can involve additional legal actions, such as garnishment of wages or seizure of assets, if monetary damages are awarded and not paid. This also includes the sale of the property under Power of Sale.
The "where is, as is" condition in a power of sale means that the property is sold in its existing state, with no warranties from the seller regarding its condition such as: structural integrity, systems (like plumbing and electrical), or compliance with building codes. Buyers must perform their own inspections and assessments to understand what they are purchasing and be prepared to handle any repairs or issues that arise after the sale.
Vacant possession ensures that the property is free of occupants and belongings at the time of sale. Achieving vacant possession typically involves serving eviction notices, complying with legal requirements under the Residential Tenancies Act, 2006, applying to the Landlord and Tenant Board if necessary, and potentially enforcing the eviction order through the Sheriff's Office. This process enhances the property's marketability and value, providing a clear and immediate occupancy opportunity for the new owner. If the property is tenanted, the Residential Tenancies Act, 2006, provides protections to tenants. The new owner must follow specific procedures to lawfully evict tenants and obtain vacant possession. Most power of sale properties that are tenanted at the time of sale will include a clause that the new owners will assume the tenants or may move for the removal of the tenants, through the Landlord and Tenant Tribunal.
As power of sale properties are often sold "as is, where is," buyers should be aware that chattels and fixtures are included in their current state, with no warranties or guarantees. This also means that the lender cannot make a guarantee that the chattels and fixtures will remain with the property at the time of closing.
