Is the Power of Sale Process Strictly Governed By the Ontario Mortgages Act?

The Ontario Mortgages Act strictly governs the power of sale process in Ontario. This legislation is designed to look after the interests of both homeowners and lenders. It covers essential features like how the proceeds after a sale are distributed and provides redemption rights for borrowers. This post goes into detail about the power of sale process. 

What is the Power of Sale?

A power of sale is the vehicle a lender uses to recover their expenses and interest plus principal on a loan after a borrower defaults on the mortgage terms. The Ontario Mortgage Act is provincial legislation regulating and describing the rights of both lenders and borrowers in mortgage agreements. This act governs how a power of sale works in Ontario.

• A power of sale starts after a borrower has broken terms in the mortgage agreement. Most often, they’ve missed one or several payments. However, other ways of defaulting on the mortgage include breaching a covenant.
• These breaches can include using the property for legal activities, damaging it on purpose, neglecting to pay the taxes and not insuring the home or property properly. 

There’s a strict process involved that involves several steps. At the end of a power of sale, the lender can evict the homeowner and sell the property. 

Steps in the Power of Sale Process

A mortgage default, as described above, is the action taken by the borrower that can start the power of sale process. After that, it follows these steps.

1. Fifteen days after the default, the lender can deliver a Notice of Sale Under Mortgage. This registered letter is mailed, and after that, a lender must wait either 35 or 40 days if the property is owned or occupied by a married person before proceeding further.
2. The borrower is given a chance to make things right next. There’s the Notice of Sale and the Redemption Period. The borrower must pay off the mortgage in full, including the lender’s legal fees, or bring it into good standing if it’s not due.
3. If the outstanding balances aren’t paid off by the end of this, the lender can proceed to what’s called a Statement of Claim.  Next, the lender gets a default judgment, and a court motion follows to ask for a Writ of Possession. 

The lender can deliver this document to a sheriff next, and they can schedule a date to evict the homeowner and family. There’s a strict process involved. The Ontario Mortgages Act provides a rigid framework for lenders and some essential rights for people holding mortgages.  

Homeowner Rights under the Ontario Mortgages Act   

Several rights under the act are specifically designed to help homeowners at different points during the process. 

They include the details of the Notice of Sale. For example, under the Act, information like the property’s lot number, address and plan number need to be included. Of course, the amount owed needs to be specified in the document, and that part needs to include the principal amount that’s not been paid, the interest that’s accrued, and any other fees like legal and enforcement monies. 

Homeowners also have the right to go to court if a lender appears to be proceeding unfairly or illegally. Section 29 of the Ontario Mortgages Act requires lenders to take reasonable steps to ensure that a property is sold for its fair market value during a power of sale. However, this does not guarantee that the borrower will receive this exact amount. 

Another area of the Ontario Mortgages Act concerns what happens if the proceeds from the sale don’t cover the amount owed. The section below covers that situation.  

Distribution of Proceeds from Sale

One way the lender is protected during this process is that two appraisals are recommended before the home is sold.

• The lender’s expenses are at the top of the list. This is the money they used to sell the property and can include related expenses and fees, such as the money that goes to a real estate lawyer and agent.
• The principal and interest plus any other money lenders entitled to are next in line to be paid from the sale.
• If there’s any money left over, it goes to execution creditors, lien claimants and subsequent mortgagees.
• Once everyone else who is owed money from the sale gets their share, the former homeowner receives what’s left.  

It’s often the case that there’s no money left over or very little from selling a property.  Borrowers who have defaulted on the mortgage also need to be aware that if the lender can’t recover all of what’s owing, they can go after the remaining sum.   

Legal Considerations and Importance of Compliance

The Ontario Mortgages Act also supplies other protections for borrowers under a power of sale. For example, they have the right to redeem, which means they can pay associated costs and arrears to bring the mortgage back into good standing before a sale. 

Borrowers also have the right to request statements clearly outlining the amounts owed. It’s the lenders’ responsibility to supply information reasonably quickly.  They also need to ensure the property is sold for market value.  

The Act ensures that lenders act fairly and responsibly. For borrowers facing a power of sale, it provides timelines and a structured series of notice periods. 

PowerofSaleOntario.ca offers private loan products that can supply the money to stop a power of sale. These include second mortgages. Email our experts at jonathan@mortgagebrokerstore.com or call 416-499-2122. 

jonathan January 14th, 2025

blog, Power of Sale