Power of Sale Ontario Answers Your Frequently Asked Questions

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A typical homeowner in Ontario would find a power of sale intimidating and confusing due to its harsh financial and legal implications. Often misconstrued, such proceeds threaten your residence if you find yourself in arrears on mortgage payments. Protecting your interests and beginning to negotiate mitigating options will require a comprehensive understanding of powers-of-sale proceedings. Here, the article addresses very frequently asked questions about the power of sale process in Ontario: What is it? How is it different from foreclosure? What specific circumstances would trigger it? What are the timelines involved in such proceedings? What steps can one take to stop it if it commences?

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What Is a Power of Sale?

Power of sale is a legal process in Ontario that gives mortgage lenders the right to sell a property, for instance, with the condition of mortgage default by the borrower. When owners fail to make the required payments, the lender may exercise the power most Ontario mortgage contracts confer upon them to sell the property. On the contrary, in a foreclosure, the lender is granted ownership of the property, whereas a power of sale subjects the property to sale without a formal transfer of ownership to the lender.

Strict legal guidelines govern such sales and typically require the lender to sell the property fairly and transparently through the open real estate market. Proceeds from the sale should then be directed first toward paying off the remaining mortgage principal balance, along with the accrued interests, penalties, and legal costs incurred. Afterward, any surplus proceeds will go to the owner. However, when the sale proceeds are insufficient to cover the liabilities, the borrower may still be responsible for paying the shortfall.

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How Does Power of Sale Differ from Foreclosure?

While they allow lenders to force the sale and collection of mortgage debts that had remained unpaid, they also create complications in the technical process and legal consequences. It is rare for a foreclosure to happen in Ontario simply because of the length and hardship involved in going through the courts, whereby the lender gets full title to the property and decides whether to sell it.

Power of sale is commonly exercised because it is faster and less costly. As the lender controls the sale, a homeowner owns the property in law until it is sold. The entire process is more rapid, involving fewer court proceedings, and the legal fees are lower. However, the lender must conduct the sale subject to provisions in the statutes designed to ensure fairness and transparency.

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What Triggers a Power of Sale Action?

Power of sale actions are typically initiated when there is a default under the mortgage, usually after two or three missed payments. In Ontario, a mortgage agreement typically includes express provisions regarding what constitutes default and the circumstances under which a lender may exercise its power of sale. In addition to non-payment, there are a few breaches of the mortgage covenants that may also trigger the lender to initiate a power-of-sale proceeding. Therefore, the primary way a borrower avoids a power of sale is by consistently paying the mortgage on time.

Apart from failing to make payments, there are several breaches of the mortgage covenants that may also trigger a lender to exercise its power of sale. Lack of insurance would be one issue; another would be neglecting property maintenance, which can lead to a decline in its value. Or perhaps even letting property taxes reach a status of bad arrears. To prevent the triggering of a power of sale, homeowners should remain aware of the importance of insuring their homes, paying their taxes, and fulfilling all other duties imposed by the mortgage contract.

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What is the Timeline of a Power of Sale?

The power of the sale process in Ontario begins when the borrower defaults on a series of payments. Typically, banks will wait approximately 15 days for a payment missed on the first instance and will then issue a notice of default. From the day the notice of default is given, the borrower has 35 days to bring the arrears up to date and pay the mortgage current, and 40 days if the parties are married. If payment in full of the arrears is not made, the lender can immediately proceed with the sale of the property.

After expiry of the redemption period, the lender issues a Notice of Sale under Mortgage, serving notice on the borrower of their intention to sell the property. This notice also confers an additional statutory period, typically 40 days, during which the borrower must settle the arrears, failing which, the sale proceeds are duly registered. Usually, the entire power of sale process takes between three and six months.

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Can I Stop a Power of Sale Once It Has Started?

Once a power of sale has begun in Ontario, a few options exist for avoiding it. Anything less would likely not be more beneficial to the mortgagor. For that reason, all agree that every cent should be paid (including the late payments, legal fees, administrative costs, and charges) so that the mortgage can be brought up to good standing, stopping any other proceedings. Partial agreements (like repayment plans or refinancing) can also pause proceedings if the lender accepts.

If the arrears cannot be paid off immediately, the simple way would be for the borrower and the mortgagee to work together on an arrangement to restructure the mortgage, refinance with a different lender, or obtain outside financing from a private lender. The sooner the homeowner can take corrective action, the better position he will find himself in. Seeking advice from power of sale counsel may empower a homeowner with knowledge of available options to help save their home.

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Taking Control: Navigating the Power of Sale Process with Confidence

In Ontario, power of sale tends to be quite stressful; however, a thorough understanding of the power of sale and prompt action can significantly mitigate the harm caused by it. Equipping the owner with as much information as possible regarding what a power of sale entails, how it differs from foreclosure, what can trigger it, the timeframe within which it proceeds, and the options available is quite empowering for them to regain control of their lives. In pursuing these remedies, such individuals can stave off power of sale for either a short-term resolution, subsequent defaults, bargaining for alternatives with the lenders, or some refinancing option. In conclusion, dealing with power of sale successfully requires three powerful tools: knowledge about power of sale, timely intervention, and professional assistance. If you have any further questions regarding private lending, please do not hesitate to contact us at jonathan@mortgagebrokerstore.com or 416-499-2122.

This story was provided by the Mortgage Broker Store for commercial purposes.

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