Can a Private Mortgage Stop a Power of Sale?
Yes, in the right situation. A private mortgage can sometimes stop a Power of Sale by providing enough financing to pay out the lender that has started enforcement. The key factors are equity, timing and whether the new mortgage creates a realistic path forward.
← Back to the Power of Sale SeriesThe New Mortgage Has to Resolve the Existing Default.
A private mortgage does not simply postpone the lender's enforcement. To stop the Power of Sale, the financing generally needs to provide enough money to pay out or otherwise satisfy the enforcing lender and the associated costs.
Equity Is Usually the Starting Point
Private lenders are often more focused on the property's value and available equity than a bank would be. A current appraisal is normally required.
The Payout Is More Than the Mortgage Balance
The required financing may need to cover the mortgage balance, arrears, interest, lender legal fees and other amounts required to stop enforcement.
Other Debt May Also Be Consolidated
If there is sufficient equity, the new mortgage may also be structured to deal with other expensive debt and improve monthly cash flow.
Timing Matters
Private financing can often move faster than conventional bank financing, but the lender still needs enough time to review the file, appraisal and payout information.
The Cost Is Higher
Private mortgages generally carry higher rates and fees than conventional financing. That cost has to be weighed against the problem being solved.
There Must Be an Exit Strategy
A private mortgage is usually a short-term solution. Before arranging it, there should be a realistic plan to refinance, sell, reduce debt or otherwise exit the mortgage.
The Private Mortgage Should Solve the Problem — Not Just Delay It.
A private mortgage can make sense when there is enough equity to stop the Power of Sale and the borrower has a credible plan for what happens after the immediate crisis has been resolved.
If the new mortgage simply adds more cost without creating a realistic exit, it may not be the right solution. In some cases, controlling the sale of the property yourself may protect more equity.
A current appraisal establishes the value the private lender will use.
Confirm exactly what is required to pay out the lender and stop the enforcement.
Include mortgages, arrears, legal costs, taxes and any other amounts that must be dealt with.
Know how and when the private mortgage will be paid out before entering into it.
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