Power of Sale Process in Ontario

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A Power of Sale is the most common mortgage remedy used by mortgagees of land in Ontario. When a borrower fails to uphold the terms of the mortgage, a Power of Sale can be used to recover the lender’s principal, interest and expenses. The lender must follow a strict process in order to follow through with the eviction of the mortgagor and the eventual sale of the property.

The Power of Sale Timeline in Ontario

Step 1: The Borrower Defaults on the Mortgage

The Power of Sale process begins after the borrower breaks the terms of the mortgage agreement. Typically, the borrower has failed to make one or more mortgage payments. Other defaults include the breach of a covenant in the mortgage: failure to insure the property, pay realty taxes, purposefully damage the property, or use the property for illegal use or activity. In the case of a breach of covenant, the lender must contact the borrower in writing to notify them that they are defaulting on the mortgage terms and give them an opportunity to remedy the default. Failure to make mortgage payments is not a requirement.

Step 2: The Lender Delivers a Notice of Sale and Related Notices

The lender must wait at least 15 days after the default to deliver a Notice of Sale Under Mortgage. There is also a requirement to give notice under the Bankruptcy Act and the Farm Debt Mediation Act, the latter two notices being mailed to the mortgagor in advance of delivery of the Notice of Sale.

The content of the Notice of Sale and to whom it must be mailed is governed by provisions of the Mortgages Act. It is mailed by prepaid registered mail to every party shown as a mortgagor and guarantor, as well as to all other parties who have an interest in the mortgaged property. These would include subsequent mortgagees, any persons with liens registered against the property, and execution creditors. After the Notice of Sale is mailed, the lender must wait 35 days (or 40 days if the property is occupied by a married couple) before taking any further steps.

Power of Sale process in Ontario example Notice of Sale under mortgage

Step 3: The Borrower is Given Time to Pay Off the Mortgage Debt

The waiting period after the Notice of Sale is delivered is referred to as the redemption period. During this time, the borrower must either bring the mortgage into good standing if it is not due or pay off the entire mortgage debt, including legal fees incurred by the lender to enforce their rights.

If the mortgagor does not pay what is owed prior to the expiry of the redemption period, the lender is able to issue a Statement of Claim for the collection of the debt owed and for possession of the property. With the eviction of the mortgagor and others living at the property, the lender can follow the approved practices, which will allow them to list the property for sale on MLS.

Step 4: The Lender Applies to Take Possession of the Property

After the Statement of Claim is issued and served, if the mortgagor does not file a Statement of Defence, the lender can sign a default judgment. After signing a default judgment, the lender must bring a court motion to ask the court for leave to allow for the issuance of a Writ of Possession. Once the Writ of Possession is issued by the court office, the lender delivers it to the sheriff of the jurisdiction in which the mortgaged property is located. The sheriff schedules a date to evict the mortgagors (often the homeowner and their family) and gives them an opportunity to move out of the house. If they do not move out voluntarily, the sheriff will attend and arrange for the removal of the occupants.

Power of Sale process in Ontario example Writ of Possession

Step 5: The Lender Evicts the Homeowners and Takes Possession of the Property

Once the homeowners are evicted, the lender will proceed to sell the home, typically using a licensed real estate agent. To protect the lender, two appraisals of the property are secured as the lender must ensure that he sells the property for market value. Special clauses are inserted into the offer that clearly states that the property is being sold on an “as is” basis.

Step 6: The Property is Sold, and the Proceeds From the Sale Are Used to Pay Off Debts

When the sale is completed and the money is received, the proceeds of the sale are paid out in the following order:

The expenses incurred by the lender in selling the property are paid first. This includes the real estate agent’s fee, the real estate lawyer’s fees, and other related fees and expenses.
Payment of the lender’s principal and interest and other sums to which the lender is entitled are next to be paid from the proceeds of the sale.
If any funds are left over after the previous payments then payment is made to subsequent mortgagees, lien claimants and execution creditors in the priority in which they were registered until the funds are exhausted.
Any remaining money after all other parties have been paid must go to the former homeowner.

Often, the costs associated with conducting the Power of Sale process are such that the homeowner will receive little to no proceeds from the sale of the property. In addition, if the mortgage lender is unable to fully recover their entire investment principal, they can file a Writ of Execution for the remaining sum owed with the local sheriff.

Important Legal Notice

Always remember that the above discussion about the Power of Sale process is for informational purposes only and is not an exhaustive discussion of the entire process available to a mortgage lender in the face of a mortgagor’s default. Any lender who is experiencing a mortgage default should seek legal advice as to how they should proceed. In addition, the borrower has rights in the face of a Power of Sale and should consult a lawyer when they receive a Notice of Sale Under Mortgage.

Need Power of Sale advice?

Speak with us, and we’ll connect you directly with a Power of Sale lawyer you need. We’ve got you covered. Call 416-499-2122 or email ron@mortgagebrokerstore.com and gain expert advice!

Discover more about deed in lieu of foreclosure by clicking here. And more about strict foreclosure here.