What Is Power of Sale in Ontario?
Power of sale in Ontario occurs when a homeowner fails to meet their mortgage obligations. If a mortgage falls into arrears (people fall more than three months behind on their payments), the lender can consider the borrower to be in default. This is when the power of sale process in Ontario begins.
The number of Canadian mortgages in arrears increased significantly during the economic downturn. In early 2008, 10,100 mortgages, or 0.27% of them, were in arrears; by 2011, the number had jumped to 18,702 or 0.45%. While the number of mortgages in arrears has fallen, 13,180 or 0.28%, of all Canadian mortgages were still in arrears at the end of 2016.1 That may not sound like a lot, but it affects a lot of families.
There are a lot of reasons why Canadians get into debt. Some debt is easier to pay off than others. When the debt load gets to be too big, households have trouble juggling bills and deciding which ones get paid off first. More often than not, the mortgage is the first bill that does get paid; however, even mortgage payments can get missed when money is tight. But lenders are only so forgiving.
Power of sale is very common in Ontario. When the homeowner defaults on the mortgage, it gives the lender the power to sell the property and collect the outstanding balance of the mortgage. When the power of sale occurs, the homeowner still retains the title to the property and keeps any surplus after the debts and costs are paid.
With the cost of housing soaring in the Greater Toronto Area, many first-time homebuyers are attracted to the idea of a power of sale property as they hope to get a deal on it. But in a power of sale situation, lenders are obligated to get fair market value for the property.
Types of Power of Sale
In the unfortunate event of a power of sale, the lender has the legal right to recover their interest in the property. But the homeowner is not left on the sidelines. There are power-of-sale rules that both the lender and borrower have to follow as outlined in the Ontario Mortgage Act.
Under the Ontario Mortgage Act there are two types of power of sale: contractual and statutory.2
A contractual power of sale occurs when the mortgage documents include the power-of-sale provision. A contractual power-of-sale timeline starts when the lender gives the borrower notice of a power of sale after 15 days of default.
The notice is called a Notice of Sale and is attached to the Mortgage Act. It informs the borrower of the lenders intention to exercise their power-of-sale right and includes detailed information on the mortgage: the date the mortgage was made, the amount owing, and a warning that if the amount owing is not paid by a specific date, the lender will sell the property.
Under the contractual power-of-sale timeline, the borrower has 35 days to pay unless it is stated otherwise in the mortgage. If after 35 days the borrower has not corrected the default, the lender can sell the property. Usually it is listed with a real estate agent, but it can also be listed independently or put up for auction.
A statutory power of sale occurs when the power-of-sale provisions are not included in the mortgage. While it is uncommon for the power-of-sale provisions to not be included in the mortgage, the lender can still initiate a power of sale as long as the borrower has been in default for three months or longer.
If the power of sale is statutory, the borrower has 45 days to pay. During this period, the lender cannot take any further action. Meanwhile, the borrower can repay the amount owning on the mortgage and bring it back up to date.
If, after 45 days, the property owner fails to catch up on their mortgage payments, the lender can step in and sell the property.
The Power-of-Sale Process in Ontario
The power-of-sale process in Ontario was created to keep “foreclosure” out of the court system and allow the lender the get the defaulted loan back in order. Still, a power of sale can occur quickly, in as little as 53 days. Again, if the power of sale goes through, any extra money is given to the homeowner unless there is a shortfall, in which case, the owner is responsible to make up the difference.
But the power-of-sale process is a lot less painful than a foreclosure. A foreclosure is a legal process where the lender gets a court order to take possession of the property. The rules for a foreclosure are also a lot stricter than with a power of sale. In a foreclosure, ownership goes to the lender. The lender does not need to negotiate with the prospective buyer and, as a result, the selling price is not as important as it would be with a power of sale in Ontario. At the same time, any profits that come from the sale of the house go to the lender. As does any loss.
Power of Sale
- Borrower remains title holder
- Property usually sold using a realtor
- Borrower responsible for any losses
- Extra money from sale goes to borrower
- Property gets transferred to lender
- Property usually sold at auction
- Borrower is not responsible for any losses
- Extra money goes to the lender
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Canadalend.com, Helping Canadians with their Mortgages
If you’re in arrears with your mortgage and are looking for a way to get caught up with back payments, contact a mortgage broker at Canadalend.com. The independent mortgage experts at Canadalend.com will help evaluate your financial situation and consider all of your options.
To find out what your options are, contact Canadalend.com today. Or you can apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.
1. “Number of Residential Mortgages in Arrears,” Canadian Bankers Association, last accessed March 16, 2017; http://www.cba.ca/Assets/CBA/Files/Article%20Category/PDF/stat_mortgage_db050_en.pdf.
2. “Mortgage Act,” Government of Ontario, last accessed March 16, 2017; https://www.ontario.ca/laws/statute/90m40/v6#BK34.