Power of Sale Properties & Things to Keep in Mind When Considering One

A home is sold by “power of sale” when the homeowner defaults on their mortgage. The bank then sells the property in order to cover the amount still owing on the mortgage.

People are often attracted to power of sale properties because they expect to get a deal on the purchase. But it’s not a “fire sale” type of situation. In fact, banks are obligated to get market value for the property.

The bank also won’t be able to provide assurances about the condition of the property because they don’t have detailed knowledge about it. Typically when your buyer works with a seller they can negotiate with them to repair certain issues as part of the transaction. But when your client is buying a power of sale property, it’s sold “as is.”

That doesn’t mean it’s not worthwhile to purchase a power of sale property. In fact, there are steps your client can take to make sure they understand what they are buying.

A home inspection is highly recommended from a qualified home inspector, engineer or contractor. They can identify underlying problems with the home’s major systems, like heating and cooling, electrical, foundation, and so forth. When your client makes an offer on the property, it can be made conditional upon satisfaction with the inspection results. This clause may allow your client to walk away from the deal if the inspection uncovers a costly issue that they don’t want to deal with.

It’s also a good idea to seek legal advice when buying a power of sale home, especially if the owner or tenants are living in the property. Your buyer's lawyer will also perform a title search to identify potential issues, including liens against the property, and will review the lengthy documentation that the bank will provide.

Finally, your buyer should be aware that the offer process may take a little longer than normal because the bank has processes to follow and their staff typically only handle offers during business hours. The bank may also retain the right to call off the deal if the owner catches up on their mortgage payments before the deal closes.

Reference: Reco's Ask Joe Column