Power of sale is a huge problem for real estate

Power of sale is a huge problem for real estate

The number of power-of-sale properties that are available on numerous listing sites is growing more alarming for the real estate industry.

Banks and borrowers are being pressured by rising interest rates. The Bank of Canada has boosted the benchmark rate from 0.25 per cent to 5 per cent over 17 months. The cost of ownership for those who took out loans to buy houses at a peak price is a staggering increase.

In a power of sale, if the home is sold for more money than is needed to cover the debt to the lender, the owner will receive the difference. But the owner will be evicted and their home sold without their say-so.

DeLuca, a real estate broker with Royal LePage Signature Realty and a mortgage agent with Pineapple Financial, focuses on connecting buyers with the power of sale opportunities. He has developed search algorithms to identify listings that, while not marked as 'power of sale', often turn out to be just that after a little digging.

Back in 2017, the last significant down period of Ontario real estate, DeLuca said, he could usually identify about 25 to 50 power of sale properties at a given moment. In early September, 2023, there are more than 140 active power of sale listings in Mr. DeLuca's database. In his opinion, it's a market that has more distressed sellers, though he would not yet call it an active disaster zone.

The vast majority of the properties identified by DeLuca are not the kind of nightmare-scenario bank sales seen in the U.S. after the subprime mortgage bubble popped in 2009. The majority of the properties marketed under power of sale come from failed businesses or land speculators who lost their bet on the market.

There are dozens of examples of properties such as those on Mr. DeLuca's list: condos that were leased until recently and now sit empty; triplexes that are half-rented with a history of increasingly large asking-rents for remaining units before the power of sale, homes in mid-renovation that have had a half-dozen ever-falling price changes; finished renovations that once had high-end furniture staging but now feature only an exterior photo.

One example of Northdale Rd. is 86 Northdale Rd. Toronto's property sold for $2.125 million in 2018, according to the city's tax records. The property underwent a thorough renovation, after which the new owners tried to sell it for $3.188 million in 2020. Now under power of sale, the lender recently listed it for $2.399 million.

Cam Cassidy, a realtor with Right at Home Realty, which advises investors in the Oshawa area, says that while not all Flippers are flopping and not all investors are cash-flow negative, he recently spoke to a firefighter who approached him for advice on how to deleverage his 11-unit rental portfolio.

A search of DeLuca's list found more than a dozen homes bought in recent years, often on the edge of the greater Toronto area, that saw the wildest price shifts between 2019 and 2023, and that are sold 'as is, where is' - a sure sign of a recent eviction.

For owners facing this possibility, Mr. Foch has empathy, but not a lot of advice.