Humber/Ontario Real Estate Course 3 Exam Practice

When under a power of sale, what happens to any surplus funds generated from the property sale?

1. They are returned to the homeowner after all encumbrances are paid.

2. They are kept by the lender as compensation for losses.

3. They are deposited into a government fund.

4. They are used to pay future property taxes.

5. They are used to cover any outstanding utility bills.

6. They are distributed among all creditors equally.

The correct answer is: They are returned to the homeowner after all encumbrances are paid.

Under a power of sale, when a property is sold, the primary purpose is to pay off the debts associated with the property, such as mortgage loans and any secured encumbrances. If the sale results in surplus funds after settling these debts, the correct outcome is that these surplus funds are returned to the homeowner. This ensures that any remaining equity in the property, representing the homeowner's ownership interest, is preserved and returned to them after the financial obligations have been met. This process is important as it offers protection to homeowners, ensuring they are not deprived of their rightful equity when their property has to be sold due to default or non-payment. The other options do not accurately reflect the legal and ethical standards applicable in these situations, which prioritize the homeowner’s right to any excess funds remaining after outstanding debts are cleared.