Getting a power of sale notice in Ontario is serious. It occurs when a homeowner defaults on mortgage payments, and their lender initiates a proceeding to sell the property to recover the outstanding debt. Receiving this notice will require you to exercise your rights and take advantage of the options available to you under Ontario law.
This article explains what a power of sale is, the timeframe within which to act, and your specific rights under Ontario law. It also explains how you can negotiate with your lender, the consequences of doing nothing, and how this will affect your credit or your future financial situation.
What Is a Power of Sale Notice?
The power of sale notice is a formal notice that lenders send whenever borrowers fail to repay their mortgage. It informs a homeowner of the lender’s intention to sell the property to realize the unpaid mortgage debt. It constitutes the first step in the standard process of handling defaulted mortgage loans through which mortgage lenders recover their funds in Ontario.
Lenders will promote home properties without going into full ownership through foreclosure. In selling the property, the amount raised from the sale is applied against the outstanding mortgage balance and other associated expenses. Any remaining funds are distributed to the homeowner. When the proceeds from the sale are insufficient, the borrower may remain liable for the deficiency.
How Long Do You Have to Respond to a Power of Sale Notice?
Homeowners usually have a period of 35 days (40 if the home is occupied by a married couple) within which a lender sends a Statement of Claim. Borrowers can either make the arrears or agree on other arrangements with the lender. Not meeting this timeline diminishes your opportunity to save your property.
If no action is taken, your lender is at liberty to sell your home. Borrowers should study the notice, check the exact deadline, and immediately decide on what course of action to take. It is recommended to seek professional legal or financial advice to ensure you are exercising your full rights.
Can You Stop the Power of Sale Process?
Stopping the power of sale process in Ontario is possible, but immediate action is required. Homeowners can halt the process if they pay off the mortgage arrears within the specified time limit. This payment reinstates the mortgage and disallows future action from the lender.
The power of sale may also be stopped by negotiating an alternative with the lender, such as loan restructuring, a repayment agreement, or temporary forbearance. The power of sale process can also come to a halt if they find refinancing with another lender or obtain a private loan to pay their mortgage arrears. Quick action, clear communication, and careful financial management are all required to stop a power of sale.
Your Rights Under Ontario Law
The law in Ontario has provided homeowners protection as part of the power of sale process. Lenders must include a formal written notice that states the actual amounts owed, the date the property must be sold, and a notice of sale. If lenders do not comply strictly, the power of sale can be voided, and borrowers can be provided with court protection.
Homeowners also have the right to redeem their property before the sale occurs. The right of redemption allows the borrower to reinstate the mortgage before the property is sold under power of sale, by paying all arrears, legal costs, and any other permitted fees. However, this right ends once the property is sold to a bona fide third-party purchaser.
Can You Negotiate With Your Lender?
Lenders will usually prefer to compromise. Being honest with your lender can result in favourable outcomes, like additional time frames to pay back your mortgage payments. Most tensions can be solved when borrowers provide lenders with credible representations of their financial state, provide their lenders with a repayment plan, and agree to resolve the default. Working with mortgage brokers, credit counsellors, or lawyers can provide added benefits to your negotiations.
What Happens If You Don’t Respond to the Power of Sale Notice?
Lenders usually don’t want to foreclose on your home. They typically would prefer to work with you rather than sell the properties they take possession of. Contact your lender to discuss options, and be upfront about what you can repay. You might also be able to get a settlement or agree on a new repayment plan.
Negotiation typically works for borrowers who can clearly outline their financial position, suggest an achievable repayment plan based on their economic situation, and demonstrate their willingness to address the default scenario when speaking with the lender. Utilizing experienced professionals is a key lever in negotiation and can lead to the best possible result.
The Impact on Your Credit and Financial Future
Power of sale will affect your ability to borrow in the future. Mortgage defaults, missed payments, and power of sale proceedings will be the most conspicuous items on your credit file, which can severely impact your credit. The lower your credit rating, the more difficulty you will have in procuring future credit. If you’re offered credit, your interest rate will be higher.
This will impact your creditworthiness for years and will make property purchases and alternative financing more costly. Recovering from this damage requires financial discipline, debt reduction, and improvement of credit over a long period. Understanding the long-term impact proves that you need to comprehend the ramifications of the power of sale.
Securing Your Financial Future
Act quickly and stay informed to effectively handle a power of sale notice and protect your home. Ontario law clearly defines borrowers’ rights, processes, timelines, and lender options to redeem or recover the property. It also allows borrowers to take legal action against lenders for unfair behaviour.
Failure to act promptly could result in losing your home and have serious repercussions on your credit score. Understand your rights, take action, and stay in touch with your lender to improve your chances of a good outcome. Know your protections and build smart financial habits to navigate power of sale challenges and safeguard your home and finances. Have questions about the power of sale? Contact us at jonathan@mortgagebrokerstore.com or 416-499-2122.
