Buying a Power of Sale Property in North Bay, As-Is

The situation

Cristina had owned one small rental property in North Bay for several years, self-managing it around her day job as an electrician. When a bank-listed triplex came up roughly 15% under what similar buildings in the area were selling for, she saw room to expand. The listing described it as a power of sale, a term she had heard but never dealt with directly.

A power of sale is a remedy available to a mortgagee, meaning the lender holding a mortgage, when the borrower defaults on payments. Rather than taking the property back through foreclosure, the lender sells it and applies the proceeds against the outstanding debt. Any money left over after the mortgage, costs, and other registered claims are paid is supposed to go back to the defaulting borrower. Before a lender can sell this way, the Mortgages Act requires that it give the borrower a formal notice and a set waiting period to catch up on payments or redeem the mortgage. Only once that period passes without the default being cured can the lender proceed to sell.

Cristina made an offer close to asking, conditional on a home inspection and a lawyer's review of the agreement, and brought the file to our office once the offer was accepted. She was hoping to close within about six weeks and start renovations on the vacant upper unit shortly after.

What the review found

Power of sale agreements are written almost entirely to protect the lender, not the buyer, and this one was no exception. The agreement stated that the property was sold on an "as is, where is" basis, with no representations or warranties about its condition, about title, about what fixtures and chattels would remain, or about whether the lender had ever occupied or even fully inspected the building. A lender in this position typically knows little more about the property than what a drive-by inspection shows; it is not the kind of seller who can answer questions about the furnace or the roof.

Three specific problems came out of our review.

First, the agreement said nothing about vacant possession. A search of the property and inquiries to the listing agent revealed that the lower unit was occupied by a residential tenant who had been paying rent to the previous owner before the default began. There was no written lease on file with the lender, and it was unclear whether the tenant even knew the property had changed hands. Under the Residential Tenancies Act, a change in ownership does not end a tenancy, and a new owner cannot simply ask a tenant to leave to accommodate renovation plans. Cristina's plan to gut and re-rent the lower unit shortly after closing was not something the power of sale agreement supported, and the seller had no obligation to sort it out for her.

Second, the municipal tax account showed roughly $9,000 in unpaid property taxes that had accumulated while the previous owner was in default and, apparently, not paying much of anything. Unpaid property taxes attach to the property itself, not just to the person who owed them, so a new owner can find a municipality pursuing the debt against the property after closing if it is not addressed as part of the sale.

Third, the home inspection Cristina had arranged flagged aging wiring in the lower unit that did not meet current standards, something she recognized immediately from her own trade. Because the vendor made no warranties about condition, there was no seller to negotiate a repair credit with in the usual way.

What we did

1. Confirmed the power of sale had been properly conducted. We reviewed the notice history registered against the property to confirm the lender had given the required statutory notice period before proceeding to sell. This mattered because a properly conducted power of sale is what allows the sale to clear away most claims registered against the property that ranked behind the defaulted mortgage. If the notice process had been defective, Cristina could have taken title subject to claims she thought she was buying free of.
2. Pushed back on the silence around possession. Since the agreement said nothing about vacant possession, we treated that silence as a risk rather than an assumption in Cristina's favour. We advised her that she could not count on an empty building at closing and that removing the tenant, if she still wanted to, would mean following the proper notice and, likely, a hearing before the Landlord and Tenant Board, not a phone call.
3. Required the tax arrears be addressed at closing. Unpaid property taxes are handled through a standard closing adjustment regardless of how a sale comes about, and we made sure the roughly $9,000 owing was credited to Cristina out of the sale proceeds rather than left for her to inherit. This is routine in any real estate closing, but it needed to be confirmed in writing given how bare the agreement otherwise was.
4. Negotiated a price reduction to reflect what the seller would not fix. With no warranty clause to fall back on for the wiring issue or the possession uncertainty, repair credits in the usual sense were not available. Instead, we negotiated directly on price, since that was the one term the lender's representative was willing to move on to get the sale closed on schedule.
5. Recommended title insurance. Given the complete absence of seller representations about title, we recommended a title insurance policy to protect Cristina against defects in the chain of title or the power of sale process itself that might surface after closing, something an as-is sale like this one made more important than usual.

The outcome

The deal closed, but not on the terms Cristina first pictured. The lender agreed to reduce the purchase price by about $25,000, bringing it to roughly $585,000, in exchange for Cristina accepting the property with the tenant still in place and proceeding without any repair obligation on the wiring. The $9,000 in unpaid taxes was credited to her at closing as a standard adjustment, so she did not pay that debt twice.

What Cristina did not get was the fast start she had planned. She took possession of the vacant upper unit immediately but could not touch the lower unit until she worked through a proper process with the existing tenant, which meant either negotiating a voluntary move-out with compensation or pursuing the notice and hearing process required to end a tenancy for renovations. That pushed her renovation timeline back by several months from what she had budgeted, and it meant carrying a below-market rent on the lower unit for longer than she wanted.

On balance, it was a reasonable outcome rather than a clean win. Cristina got the property at a further discount that roughly offset the delay and the added legal steps around the tenancy, and she avoided two mistakes that would have cost her more: closing without confirming the power of sale notice had been done properly, and closing without a credit for taxes she had no part in accumulating. The wiring issue became a known cost she could plan for as an electrician, rather than a warranty dispute she could not have won anyway.

What you can learn from this