Owning a home in Ontario, and in particular, the major urban centers such as Toronto can be very costly. The Toronto cost of living index is one of the highest in the country with an estimated $3,365 per month estimated to sustain a family of 4, before factoring in monthly mortgage payments.
House prices also continue to appreciate, despite the ongoing pandemic. Home sales have also increased through 2220. The average Ontario selling price of a single detached dwelling has increased to 685,000 as of January 2021.
Despite the high costs associated with owning a home in Ontario, mortgage arrears are still very unusual. Out of the owned properties in the province, 2652 properties have fallen into arrears which represent less than 1% (0.11%) of properties where mortgage default has become an issue. There are times, however, when meeting monthly mortgage payments becomes too much of a financial squeeze and there may be a mortgage default.
Power of Sale and Foreclosure Defined- Some Key Differences
Your lender may have chosen to include in your mortgage contract a clause to outline the lender’s right to initiate proceedings when dealing with mortgage default. This clause is optional, however. Under the Ontario Mortgages Act, the right to the power of sale or foreclosure is given to all mortgage lenders. When a homeowner in Ontario falls behind on mortgage payments, the loan goes into arrears. The lender can then take steps to sell the property to recover losses.
In Ontario, the method that is most commonly used to deal with mortgage loan default is Power of Sale. So what exactly is Power of Sale? This term refers to the lender legally taking the right to sell the property. The lender has been given the power to sell a home or property. In a Power of Sale, the homeowner still holds the title to the property. However, the lender has the legal right to evict them through the sheriff and sell the home.
The profit from the property sale goes to the owner. However, the lender deducts legal, administrative, and closing costs. The high costs associated with selling the property will diminish the profit considerably.
If the cost of selling the home by the lender costs more than the profit made on the property, the lender has the legal right to sue the owner for compensation. The whole process can typically take a few months at little cost to the lender. As a borrower, you will be subject to extremely high fees ranging up to 30,000 dollars in the power of sale proceedings.
Power of Sale Process
There are clear steps in the power of sale process that the lender must take to legally have the owner evicted from the property and sell the house. These steps are clearly defined as:
- Allow for 15 days– If a borrower misses a payment, is significantly late, or breaches another mortgage term (like failing to maintain insurance), the Ontario Mortgage Act requires giving them 15 days to fix the issue before the lender can begin power of sale proceedings.
- Send a Notice of Sale to Borrower- Once 15 days have passed after a term of your mortgage contract has not been met, a lender is now entitled to send a letter to your borrower. This letter is referred to as a notice of sale which will inform that the mortgage is in default. The notice of sale letter will inform the owner that there is a redemption period to try to put the mortgage in good standing.
- Lender Will Issue a Statement of Claim- If the homeowner does not pay what is due by the end of the redemption period, the lender has the legal right to issue what is called a Statement of Claim to address the debt owning and take possession of the property.
- Lender Can Take Possession of the Property– After a judge grants possession and the borrower hasn’t paid or cured the mortgage, the lender can request eviction.The owners are given a date to vacate, and if they refuse, only a sheriff—not the lender or lawyer—can enforce their removal.
- Take Steps to Sell the Property- In the final step of power of sale, the lender takes possession and sells the property as-is, with the owner covering costs and receiving any remaining profit after substantial fees.
What is Foreclosure?
There are several key differences between the Power of Sale process and foreclosure. The most significant difference between the method of Power of Sale and Foreclosure is that when a property goes into foreclosure the lender takes over ownership of the property. The lender is responsible for all potential gains on the property as well as all liabilities.
Foreclosure typically involves lengthy court proceedings to carry out and can be costly. The lender keeps any profits from the property but cannot sue the borrower for any shortfalls. The foreclosure process is much longer than that of power of sale. Typically up to a year compared to under 6 months for the process of the power of sale.
Since the lender now controls the property, they can sell it. Any profits from the sale go to the lender.This comes with risks for the lender. They are now responsible for any liabilities tied to the property.
In both foreclosure and power of sale, the action must start with a Notice of Sale sent at least 15 days after default. However, many lenders may take more time and wait for multiple missed mortgage payments before taking action. The foreclosure redemption period is usually 30 days, and the lender cannot sue for any shortfall. The homeowner will receive a Statement of Claim. It will state that the lender is proceeding with foreclosure.
The most significant difference between the process of the power of sale and foreclosure can be defined by three major criteria:
1. The involvement of the courts.
Foreclosure is a legal process involving lawyers and the court’s approval. The lender must make an application with the courts to start the foreclosure process. Foreclosure is used commonly in other Provinces when dealing with mortgage arrears.
2. How the proceedings are initiated
Unlike power of sale, foreclosure requires the lender to apply to the court for permission to begin proceedings.
3. Time that each process takes
Due to the involvement of the courts, and by extension lawyers, the time the foreclosure process will take will differ considerably. The foreclosure process takes considerably more time because of having to make an application directly to the courts. The lender will not be required to go through the courts under a power of sale.
Let Mortgage Broker Store Help You if You are in Mortgage Arrears
It can be very stressful when faced with an imminent power of sale or foreclosure on your valued home. Many reasons led to your mortgage falling into arrears. There are many reasons to bring your mortgage into good standing and avoid power of sale or foreclosure.
Mortgage Broker Store can guide you through your options. They offer access to a wide network of lenders to help prevent power of sale or foreclosure. Don’t hesitate to contact us at your convenience to answer any concerns you may have.
