Over 750,000 Canadians have benefited from mortgage deferrals provided by various financial institutions such as banks. Yet, most of these programs have ended (or will end soon), leaving borrowers on the hook for deferred or new monthly mortgage payments. Some financial analysts expect a ‘mortgage cliff,’ which will find investors in mortgage arrears. This could lead to the power of sale in Ontario.
What’s the power of sale in Ontario?
Generally, ‘power of sale’ refers to a common clause written in most mortgage agreements. It legally allows a mortgage lender to sell the property if the buyer falls behind on monthly mortgage payments. In fact, power of sale is a common remedy that financial lenders use to recoup the amount of money loaned whenever a borrower defaults on payments. Since the property still has value and can be sold in the real estate market, power of sale is a straightforward way for lenders to make sure they get their money back.
What’s the difference between foreclosure and power of sale?
When people lose their houses because they defaulted on their mortgages, you will hear them say that the lender foreclosed on their homes. So, are foreclosure and power of sale the same thing? While they might seem similar, foreclosure and power of sale are different legal processes.
Foreclosure gives the mortgage lender legal title to the property in question. That means the financial lender will become the legal owner of the home after foreclosure. In this case, the lender assumes all liabilities and debts such as property tax associated with homeownership.
Additionally, foreclosure often ends with a property sale since it allows the mortgage lender to recoup their loaned money. The entire process can be slow and costly, which is why most lenders prefer the power of sale in Ontario instead of foreclosure.
The power of the sale process
Note that the entire power of sale process is a legal process that allows mortgage lenders to take control over the property in question once the borrower defaults on expected loan payments. Once lenders invoke the power of sale clause, they issue a demand letter. This is a document that outlines what the lenders want from the borrower to restore the mortgage loan to an acceptable standing.
Suppose a borrower cannot pay their mortgage arrears to bring their loan back to an acceptable standing within the period stated in the notice of sale under mortgage (demand letter). In that case, the lender’s law firm will issue a statement of claim. This is a lawsuit filed with the Superior Court of Canada or local Small Claims court to determine default and rule in favor of the lender – allowing the lender to repossess the property.
The statement of claim also provides notice to all entities with a stake in the real estate asset. Once the lender has filed the suit, you will have 20 days after notice (redemption period) to file a statement of defense. If this period lapses, your lender will demand full payment of the mortgage loan to stop the power of sale in Ontario. The law firm representing your lender will then issue a writ of possession, a legal document that lets the lender appoint a sheriff to conduct an eviction.
After the sheriff has issued an eviction notice, you will be required to vacate the home within a specified period. Your property will now be in the lender’s possession. Remember, the power of sale is a complex process associated with exorbitant costs. Therefore, it’s recommended to seek legal advice.
Ways to stop the power of sale in Ontario, Canada
The most common and effective way to avoid the power of sale in Ontario is to sell your home on your terms. Suppose you are concerned about your ability to make regular payments. In that case, selling your home will allow you to pay off the mortgage. You can then look for another home that you can afford or consider renting.
If you choose to sell your home, consult with experienced agents to determine the best selling price for your home and pay the entire mortgage debt. The agents can also help you search for another home, evaluate a mortgage contract (if you need mortgage funds), and handle other steps of acquiring a property on your behalf.
In case you are at risk of defaulting payments and selling the property is not an option, talk to your lender. Work with a reputable real estate agent or mortgage broker to find out if it’s possible to make your monthly payments more manageable or defer the payments for a while. If you have already missed a payment, it is crucial to talk to your lender within the shortest period possible. After all, the notice of sale is likely to be issued after 15 days.
Once the power of sale in Ontario starts, you (the property owner) will have limited options and limited options to stop it. So, if you are concerned about your monthly mortgage payments or accumulating mortgage arrears, it’s time to take the necessary steps to avoid the power of sale in Ontario.