Most Power of Sale Files Are a Trap. Here's How to Spot the Ones That Aren't.

The calls are coming in. Broker colleagues are getting them too. Homeowners in arrears, lenders issuing notices, redemption periods ticking down. Power of sale filings in Ontario have been climbing steadily, and every one of those files eventually lands on someone's desk.

Here's the problem: most brokers are treating rescue files like a normal deal. They gather documents, shop lenders, follow up, burn a week. Then nothing closes and they move on. I've watched this cycle repeat enough times that I feel obligated to say what most people in this business won't say directly.

Most power of sale files aren't worth your time. And knowing which ones are is the entire skill.

The Second a Borrower Hits Arrears, the Lender Pool Collapses

This is where the triage has to start. The moment a borrower is in arrears, or a lender has issued a notice of sale, traditional lenders are gone. Not reluctant. Gone. Banks, credit unions, monoline lenders — they all underwrite on debt serviceability. A borrower who has already proven they can't service their existing debt is not a candidate for new institutional financing. Full stop.

So you move down the stack. B lenders and alternative lenders are sometimes floated as an option here. But most of them are also looking for a conventional exit: a borrower who can refinance back to an A lender within 12 to 24 months. In a power of sale file, that exit usually isn't credible. The timeline is too short, the credit damage is already happening, and no institutional lender is going to recover this file in time to matter.

That leaves private. And that's where the real conversation starts.

Private Lenders Aren't Rescue Heroes. They're Risk Managers.

Here's what most people miss about private money in a POS context: a seasoned private lender already knows what you know. The borrower has proved, through the fact pattern in front of you, that they struggled to service their debt. Lending them more money at a higher rate and expecting a different outcome is not a thesis. It's hope. And experienced private lenders don't fund hope.

The question a good private lender is asking is not "can this borrower get current?" It's "what happens to my capital if they can't?" The exit has to work even in the worst case. That means enough equity to cover the payout, the arrears, the lender's legal costs, the private lender's fees, and the cost of selling. If the math doesn't work on a lender-run sale, the deal doesn't work.

So what are they actually funding? Two profiles, in my experience.

First: the borrower with significant equity who has been caught by something external. A job loss, a market correction that squeezed their cash flow, a life event that temporarily disrupted income. The problem wasn't chronic. The equity is real. And there's a genuine, demonstrable path forward, whether that's selling on their own terms, returning to employment, or having a co-signer with genuine means who can backstop the position.

Second: the borrower who has been pushed into an expensive corner by their current lender. Say they were ticking along at a 7% rate, hit a missed payment, and now the lender is charging them penalty interest and fees that have effectively pushed their cost to 11% or higher. If there's enough equity in the property, a private lender can step in at a rate that is still meaningfully lower than the penalty position, buy the borrower time to sell properly, and walk away with capital intact. That spread is the deal. That's a file worth working.

The Exit Has to Be Real Before You Pick Up the Phone

Before you submit anything, you need to know one thing with certainty: what is the exit, and can the borrower actually execute it?

"They'll refinance back to a bank" is not an exit on a POS file, not in any reasonable timeframe. "They'll sell the property" is an exit, but only if the borrower actually understands that and is committed to it. I've seen brokers spend ten hours on a file where the borrower's real plan was to stay in the home indefinitely. Private money won't save that family. It'll just delay the inevitable and leave them with less equity when the sale finally happens.

The clients worth fighting for are the ones who already know what's coming. They understand the home probably needs to be sold. They want to run that sale themselves, on their own schedule, rather than letting the lender do it for them, which almost always means less money in their pocket. A private mortgage in that scenario is exactly the right tool: it stops the clock, lets the borrower control the process, and should leave meaningfully more in their hand than a lender-run sale would. That's the standard. If it doesn't clear that bar, the file isn't a rescue. It's a delay.

For a detailed breakdown of the equity math involved in stopping a power of sale, our piece on how much equity you need to stop a power of sale in Ontario is worth reading before you submit anything.

The Co-Signer Conversation: Be Careful What You Rope In

Sometimes a broker's instinct is to solve the equity or income gap by pulling in a family member. A parent who's willing to put up their property. A sibling with clean credit. I understand the impulse. But this is where you have to slow down and be honest with yourself and with the family.

If the underlying borrower doesn't have a real path to improvement, adding a co-signer or a guarantor doesn't fix the problem. It spreads it. Now two families are exposed to a file that was already struggling. Before that conversation happens, the broker's job is to be certain that the primary borrower's situation is actually recoverable, that the improvement is provable, and that the person putting up their property understands exactly what they're signing onto.

That's a harder conversation than most brokers want to have. But it's the right one. The brokers who build trust over the long run are the ones who tell a parent "I don't think this is a good idea right now" when that's the honest answer.

The Three Questions That Tell You Whether to Work the File

I use a simple filter before I spend serious time on any power of sale file. Three questions:

Is there genuine equity after a full payout? Not on paper at peak 2022 valuations. Today's value, with today's comparables, minus everything owed, minus fees, minus a selling cost buffer. If that number is thin, the file probably isn't fundable, and the mechanics of stopping a power of sale depend entirely on that cushion being real.
Does the borrower have a real, committed exit? Selling, and meaning it. Or a demonstrably credible return to financial health within a term a private lender can hold. Not "we'll figure it out." A plan.
Is the problem situational or structural? A borrower who lost their job for six months and has since returned to work is a different risk profile than a borrower who has been in declining financial health for three years. Private lenders who know what they're doing read that distinction immediately.

If all three clear, work the file hard. If any one of them fails, have the honest conversation with your client and move on. Their best option may simply be to list the property, sell it on their own terms before the lender does, and walk away with whatever equity remains. That's not a failure. That's the right advice.

The Bottom Line

Power of sale files are going to keep landing on your desk. The brokers who will get burned are the ones who treat every rescue call as a transaction waiting to happen. The ones who build a reputation, and a sustainable book, are the ones who triage honestly, move fast on the fundable files, and have the spine to tell the rest of their clients that selling is the smarter move.

Private lenders who work POS files aren't in the business of charity. They're in the business of equity and exits. Get those two things right, and the deal is doable. Get them wrong, and more loan money will not solve the problem. It will just make it more expensive.

Know your lender's filter before you submit. Know your client's real situation before you promise anything. And be honest enough to walk away from the files that were never going to close. That's what builds a practice that lasts.

If you have a file and want a straight read on whether it's fundable, I'm easy to reach. No pitch, no pressure. Just a direct conversation about whether the numbers work.

David Steinfeld, Stonefield Capital, Richmond Hill
stonefieldcapital.ca | 416-371-2077