Should I Get a Lawyer to Handle My Ontario Power of Sale or Foreclosure?

Lenders in Ontario will sometimes, although a rare occurrence, have to deal with mortgages that have fallen into default. When deciding which method will be used to deal with mortgage arrears the term often used is default management. Simply put, this is the process put in place by lenders when an Ontario homeowner falls behind in mortgage payments. 

The two methods used in Ontario include the power of sale and foreclosure. The vast majority of Ontario-based lenders will choose the power of sale method to handle mortgage default. Power of sale is a faster process and does not involve the courts to complete.

The Canadian Bankers Association posted the latest figures on February 24th on the number of properties that have fallen into arrears in Ontario as of November 2020. The number remains very low, despite the ongoing pandemic and the spinoff effects on various sectors of the Canadian economy. Of the total number of owned properties in Ontario (2,083,895) only 2,008 mortgages are currently in arrears which represent only 0.10%.

Other Types of Default

Lenders refer to default as the actual act of failing to fulfill the terms of the mortgage contract. Going into default over any loan or contract simply means the terms a particular term in a contract is not met and/or payment is late or not made. The main reason that any Ontario homeowner will be facing default is due to mortgage arrears, however mortgage default can result from other reasons including:

1. Failure to pay property taxes

2. Failure to pay insurance 

3. Having liens on a property 

4. The first mortgage on a property is in default; it can also trigger a second mortgage default.

5. Failure to maintain the property to ensure the condition is livable.

Lenders under the Ontario Mortgages Act, are entitled to initiate a power of sale or foreclosure when mortgage default has become an issue although some mortgage contracts will have the specific terms outlined clearly about mortgage default.

Regardless of what method a lender chooses to use, it is only after a particular mortgage has been in arrears for a minimum of 15 days that the Mortgage Act will permit the lender to attempt to sell the mortgaged property to third properties to try to make up for any losses due to mortgage default.

Know the Steps Involved in Taking possession of your Property

Ontario Homeowners should be fully aware of the set steps that lenders must strictly follow when using either default method available to them.

1. Allow for 15 days– once there is a missed payment or another mortgage term has been broken such as failure to pay insurance on the property, the Ontario Mortgage Act requires that the lender allow an Ontario homeowner 15 days to try to rectify the situation and before the lender can exercise the power of sale. 

2. Once you have passed the 15 days after a term of your mortgage contract has not been met, you are now entitled to send a letter to your borrower. This letter is referred to as a notice, specifically a notice of sale. The notice of sale letter will specify that the homeowner has gone into default and has a redemption period to try to rectify the situation by making up any missed payments or meeting the term of the contract that had not been met. 

The redemption period is 45 days in Ontario before the statutory power of sale can be enacted. This period is designed to give the Ontario homeowner the necessary time to try to put the mortgage back in good standing.

3. If a homeowner has not brought the mortgage out of arrears the lender will send a Statement of Claim specifying that he/she intends to take possession of the property.

4. If the mortgage is still in arrears your lender is now in the position to sign a default judgment to ask the court to issue a Writ of Possession. 

5. When the courts grant it, the Sheriff will receive the Writ of Possession directly from the court and is now in the position to fill out the necessary paperwork to start the eviction process.

6. The Sheriff will now send a  Notice of Eviction which will specify the time and date that the homeowners must vacate the property. If they do not leave voluntarily, then they may be forcibly removed by the authorities from the property.

7. Take Steps to Sell the Property- It is only at this step of the power of sale proceedings that a lender can legally take back possession of the property and attempt to sell the property. The fees will be the responsibility of the previous owner and can be very substantial. The profit will go to the former homeowner but will be considerably reduced through the enormous costs associated with a power of sale. A lender is entitled to sell this property in several ways including at auction. The property must be sold at fair market value and in the state, it is currently in.

What Legal Steps Can be Taken to Stop Power of Sale?

There is time to stop the power of sale or foreclosure process. Legally there are methods to try to delay the process. Regardless of whether you intend to delay or stop your lender from repossessing your property it is always highly recommended to consult the services of a real estate lawyer at any time during the process. Method of delaying the process include:

1. File a Statement of Defence– One option open to Ontario Homeowners to try to delay the process is to bring into question the validity of the mortgage or the legal proceedings. A lawyer can represent you when clear mistakes may have been made by the lender. A judge will determine the legitimacy of the default process.  It is rare to win these cases unless clear violations have been made such as the borrower not receiving the agreed-upon funds. This is why this process, although always an option for homeowners is in most circumstances considered not to be a good option. The fees associated can range up to 30,000 dollars. Only use this option if the mortgage lender has made very clear violations of the Ontario Mortgages Act.

This essentially represents a delay tactic that can buy more time to put your mortgage in good standing. It is important to calculate the financial cost of taking such a step, however, as the legal fees can be quite high (up to 2 to 3 thousand dollars) and it is a method to delay rather than prevent completion of a power of sale. 

2. Ask the Judge for a Delay– By bringing the question of the legitimacy of the mortgage process to the courts the process may be delayed. Predominantly, however, judges tend to judge in favor of the lender. 

Although these methods are available to a homeowner, it is always preferable to try to put your mortgage in good standing. Although these steps to delay the mortgage proceedings may be costly, it is also always advisable to seek the general legal advice of a real estate lawyer if you are facing the threat of repossession of your property by your lender. When you are buying or selling your property a real estate lawyer will also be necessary.

Mortgage Broker Store Can Provide Direction concerning legalities

At Mortgage Broker Store we are very experienced in the power of sale and foreclosure process. It is important to understand what legal advice might be needed if you are facing possible possession of your home.  We can also provide a list of lawyers that can give you a free consultation regarding your power of sale. 

Mortgage Broker Store has access to a broad network of private lenders located throughout the Province who can help negotiate a private mortgage to help you pay arrears and enable you to make your monthly mortgage payments possible. Don’t hesitate to seek legal advice and take the necessary steps that could prevent a lender from ultimately taking back possession of your property. 

jonathan March 23rd, 2021

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