ASK CHARLES | Is buying a “power of sale” property a good way to get a deal on a home?
What is a “power of sale”? If a homeowner doesn't pay their mortgage, the bank sells the house to recover funds owed to them. It's a common misunderstanding that power of sale homes are sold at “quick sale” discounts. But, the reality is that the lender must take reasonable action to achieve fair market value for the property. It can still be a good idea to purchase a power of sale, but there are a few things to consider when doing so. First off, the property is usually sold “as-is, where is.” This means the lender will not disclose hidden defects in the home. You can usually ask the seller detailed questions about the condition of the property, and you may also request that they repair certain issues as part of the deal. However this is much less likely to happen with a power of sale, repairs are often the buyers responsibility. When purchasing a power of sale home, a thorough inspection of the property is highly recommended. A home inspector, contractor, environmental consultant or structural engineer can identify underlying problems with the home’s major systems, like heating and cooling, electrical, plumbing, foundation, and so on. In addition, when you make an offer on the property, you can make it conditional on your satisfaction with the results of the inspection. If the inspection uncovers a major issue, the clause may allow you to walk away from the deal.The second issue involves the legal aspects of buying a power of sale home. When tenants or owners are still occupying the property, that can be cause for additional challenges as it is often hard to get tenants/occupants to vacate the property. A real estate lawyer will provide you with guidance on how to proceed. A legal review of the documentation from the bank is a good idea, since the documents can be very long and difficult to interpret.The third thing to pay attention to involves timelines. The bank has procedures they must follow when they’re considering property offers, and their team typically only handles offers during business hours. As a result, the offer process may take longer than normal.Finally, banks may include a “right of redemption clause” that lets them terminate the deal if the original owner pays up on their mortgage before the transaction closes. This rarely happens, but it’s a good idea to find out if they will include the clause in the Agreement of Purchase and Sale. There are many things to pay attention to when buying a power of sale home, but it may still be a positive experience. Understanding potential issues, and hiring the proper experts will be extremely helpful. If you have a question for Charles about the home buying or selling process, please email email@example.com