Greater Toronto Area power-of-sale-listings reached a two-year high in April, The Toronto Star reported.

More than 300 power-of-sale listings were recorded across Ontario in April as falling home prices and a sluggish spring housing market leave more homeowners unable to cover their mortgage obligations, according to the Star, which cited data from publicly available IDX and VOW property-listing databases.

The record total indicates a growing number of distressed sellers in the GTA and across Ontario, with many homeowners now owing more on their mortgages than their properties are worth. The findings come as many would buyers of preconstruction condominium projects are forfeiting thousands of dollars worth of deposits and rescinding presale contracts due to financial worries.

A power of sale occurs when a borrower defaults on a mortgage and the lender takes control of the property to sell it and recover outstanding debt.

Jonathan Alphonso, principal broker at Mortgage Broker Store and a real estate agent with Royal LePage, told the Star that the number of forced sales is likely much higher than publicly disclosed listings suggest.

“I’d say, I’m maybe capturing 25% to 30% of all power of sales,” Alphonso, who has created the Power of Sale Listings website, told his interviewer. “We’re seeing a tonne of power of sales and a lot more severe power of sales because many people owe more than the property is worth.”

The GTA housing market has experienced only marginal sales gains this spring while prices remain more than 20% below the February 2022 peak, leaving many homeowners with underwater mortgages, the Star reported.

Rising unemployment, higher consumer debt loads and difficulties renewing mortgages at higher interest rates are contributing to the increase in distressed properties, Graeme Hamilton, a licensed insolvency trustee at Spergel, told the Star.

“We’re in a depressed real estate market, so it’s not like there’s this sideline of buyers, right? “I think it’s just one of those perfect storms, unfortunately.”

Hamilton added that some buyers who purchased preconstruction condominiums during the market peak are now unable to close on their units.

“We’re getting new calls every week from people that have a home underwater and are falling behind on their mortgage payments,” he told the Star. “For those who bought preconstruction condos, we’re hearing that one in five aren’t able to close right now. It’s a really tough conversation.”

According to data from Power of Sale Listings, Toronto recorded the highest number of power-of-sale properties over the past 12 months, followed by Brampton, London, New Tecumseth and Markham.

Alphonso said investors who purchased multiple properties during the pandemic housing boom are now among the most financially vulnerable.

“Investor buyers, they only bought because they thought they could rent it out to make a profit on it — those people are in particular trouble,” he told The Star.

The Star that private and alternative lenders account for roughly two-thirds of power-of-sale cases, while mortgage arrears among major lenders in Ontario reached 0.30% in February, the highest level since 2011, according to the Canadian Bankers Association.

Anthony O’Brien, senior managing director at Jesta, expects distressed assets to drive bulk-condo sales in the future.

“I think that’s going to be a big part of this market,” said O’Brien. “I think there unfortunately are going to be people that are handing the keys over to the banks or the [general contractor.] “And, it’ll just be based on, you know, highest bidder takes the inventory.”

Jesta has launched a new $500-million Toronto bulk-condo investment program that will focus on acquiring unsold units in Toronto’s downtown core. The company recently made its first in the program, acquiring a $30-million portfolio.

O’Brien said court-ordered sales are “very tight in terms of due diligence” and require buyers to take more risk because “often there’s not a lot of information available.” But that risk can be justified for the right unit price.