Foreclosures in Ottawa

Jan 27

If you’re looking into real estate investing, you may have stumbled across foreclosures.

We spoke with our amazing agent Owen Kennedy about foreclosures in Ottawa - are they here, what do they mean, and are they a good deal?

A foreclosure, by definition, is a home that has been forced on the market by the lender because the owner of the home could no longer make the payments or defaulted on their mortgage. This strategy is used by lenders to make back the remaining money that is owed to them.

However, foreclosures aren’t really typical in Ontario. When a situation like this arises where a homeowner can no longer pay for their monthly home payments, a lender will use something called a “Power of Sale” which helps them avoid ever actually ‘owning’ the property during the sale. Power of Sale is used in Ontario, PEI, New Brunswick, and Newfoundland. Foreclosures are more popular in other provinces.

Power of Sale properties will be listed on the MLS like any other property, so they are not easy to search for. Most often, you will need to work with a real estate agent who can search in the back end of the MLS for seller names that include the words “bank” or “trust.”

Most lenders in Ottawa will not even want the listing to include the words “Power of Sale.”

Power of Sale properties are usually sold at market value. If the property sells for more than it is worth, the homeowner will get any excess money. If it sells for less, they are still liable for the extra funds. Power of Sale can be stopped by the homeowner by fully paying off the mortgage before the sale of the home is complete.

This is different from a foreclosure, where the homeowner will not receive any profits from the sale, but is also not responsible for any remaining payments if the property sells for less than it was originally valued. Foreclosures are also a significantly longer process than a Power of Sale, which is typically quick.

So is buying a Power of Sale home in Ontario a way to get a good deal?

The answer is, not really. Lenders must sell the home for at least market value so that the homeowner is not liable for extra costs should it sell under market value. Most provinces will have legal requirements to ensure this. For example in Newfoundland, a Power of Sale home cannot be sold for less than 75% of its appraised value unless they have a court order to do so.

On top of this, Power of Sale homes are sold as they are. You won’t be able to ask the sellers to make updates, changes, or fixes as that would add costs to the sale. It is a lot more likely that repairs will be needed on these homes, as well, because if the homeowner was unable to pay their mortgage, they probably also couldn’t afford to do a lot of work around the home.

The bank will also typically be stricter about the offers they are looking at, Owen Kennedy explains. Owen notes that this will typically look like a 72 hour irrevocable on offers and/or a higher deposit with your offer.