Increase in power-of-sale listings as lenders take over homes of over-leverage homebuyers

The Toronto area has seen a 112 per cent increase in power of sales over the last year as more homeowners struggle to pay their mortgage, leaving some lenders with no option but to take over the home and sell it.

 

In September across the GTA, there were 204 power-of-sale listings, more than double the 96 power of sales reported in September 2023, said Anza Malik, broker of record and co-founder of Valery Real estate Inc. Brokerage.

 

“We’re seeing a lot more power of sales come on the listings,” Malik said. “And we’ll continue to see more for the next year if not longer.”

 

In 2020, the average number of power-of-sale listings per month was 4.5. In 2021, that number rose to 33, then 38 in 2022, jumping to 83 in 2023. So far, 2024 has seen the largest average monthly power of sale listings at 159.

 

The data is collected from the Multiple Listing Service (MLS), where all the listings had some variation of “power of sale” in the vendor’s name, Malik said. The power-of-sale data is archived before 2020 and realtors can’t gain access on the MLS, he added.

Homeowners who bought during the pandemic when interest rates were ultralow are beginning to renew their mortgage and can’t pay the increased monthly borrowing costs, experts say. Many bought property they couldn’t afford, and are now over-leveraged, unable to pay their other mounting debt. As unemployment creeps up, experts say there’s more pain to come in the near future.

 

In the last two years the number of power-of-sale files coming to real estate lawyer Matthew Gibson’s office has at least tripled in volume compared to pre-pandemic. Clients who are lenders come to him trying to recuperate lost costs as borrowers are unable to pay them back.

 

It’s worse for those who bought in the pandemic with a variable-rate mortgage as they’ve mostly paid interest and little principal off their balance sheet. As a result, they have less equity in the home. And in some parts of the GTA, home prices have fallen in value by as much as 40 per cent since the 2022 peak, meaning they bought an overvalued property.

 

“More borrowers are going down the bankruptcy route because more are underwater,” Gibson said. “They need to hand the keys over, talk to a bankruptcy adviser and have a fresh start. We’re seeing an increase in those hard conversations.”

 

Graeme Hamilton, a licensed insolvency trustee at Spergel, currently has three clients undergoing the power-of-sale process on their home as they fell behind on their mortgage payments. The bank took the property back and listed it for sale on MLS, with the homeowner on the hook for any shortfall between the sale price and what they owe. If homeowners can’t make up the difference, they have to file for bankruptcy.

 

“There a lot more of this going on right now,” he said.

 

While elevated interest rates from the Bank of Canada have hurt many homeowners, many power of sales are from private lenders who have higher interest rates than the major banks.

“Private lenders don’t change their rates as quickly, they’re not following the Bank of Canada in the same way,” said Gibson. “This (increase in power of sales) is really a symptom of the frenzy we saw in the real estate market over the last few years and people getting into it without the proper experience. We also have a massive debt crisis on top of it all.”

 

Consumer insolvencies in Canada are nearing historical highs, reminiscent of levels last seen during the aftermath of the 2008-2009 recession. Last August, insolvency volumes increased by 8.9 per cent across Canada and 15.4 per cent in Ontario compared to the previous year, according to licensed insolvency trustee firm Hoyes, Michalos & Associates.

 

But it’s not time to “ring the alarm bells” yet, said Malik.

 

There were more than 25,000 active listings in the GTA in September, according to the Toronto Regional Real Estate Board (TRREB), so 200 power-of-sale listings is a tiny percentage of the overall listings. And mortgages in arrears by three months or more are still below pre-pandemic levels.

 

While the impact on the overall real estate market is small, the trend is concerning on an individual level, Malik said.

 

“People’s life savings are getting wiped off, their net worth just diminishing.”

 

 

 

 

This article was first reported by The Star