If a borrower falls behind on his mortgage payments and goes into default, the lender has the legal right to go after its interest in the property. This is why Ontario instituted the Ontario Mortgage Act to provide both borrowers and lenders with an established set of privileges available to secure their interests.
Power of Sale Process in Ontario
Lenders benefit from a fairly swift power of sale process in Ontario. The law was designed in part to help lenders get rid of foreclosed property and recover their funds more quickly. This is why you find power of sale provisions inside the mortgage documents, so that the sale process can begin without having to go through the court system.
The Ontario Mortgage Act includes two different kinds of power of sale: contractual and statutory.
Contractual power of sale refers to mortgage documents that contain the provisions for the power of sale. If those provisions are not in the paperwork, then statutory power of sale comes into effect. The statutory variety is quite rare, but as long as the default period is at least three months, the lender can still carry out power of sale.
In both cases, the power of sale process begins with a notice to the borrower once he has been in default for 15 days. Everyone who has an interest in the property (the borrower as well as any statutory lien holders, later encumbrancers, and anyone else who has given the lender written notice of interest in the property) must receive a copy of this notice.
The Mortgage Act refers to this notice as a Notice of Sale under Mortgage. Its purpose is to inform the interested parties that the lender intends to exercise the power of sale, and it must include this information:
- The date when the mortgage was issued
- The property mortgaged
- The amount owed
- The lender and the borrower
- The warning pertaining to the power of sale
In cases of contractual power of sale, the borrower has 35 days to satisfy the balance unless the mortgage agreements provide otherwise. If the power of sale is statutory, the time period is 45 days. During this time period, the lender is prohibited from taking any further action, and the borrower can pay back the defaulted amount and bring the loan back into good standing.
After the redemption period expires, the lender can then move to sell the property, by auction, private contract or tender. In most cases, the lender lists the property with a real estate agent, who places the property up for sale on MLS.
The law has several requirements to ensure that the availability of the property is widely known throughout the real estate market, including:
- Seeking and obtaining appraisals
- Listing property with MLS or a similar multiple listing service
- Maintaining the listing for the typical time frame for properties up for sale
If the sale yields more than the balance owed, the lender must credit that to the borrowers, assuming that all other lien holders have been satisfied. The proceeds of the sale must satisfy these interests in order, according to the Mortgage Act:
- The cost of conducting the sale
- Interest and fees owed under the mortgage
- Principal owed under the mortgage
- Amount due to subsequent encumbrancers
- Tenants’ security deposits (if applicable)
Please bear in mind that this article contains guidelines rather than professional legal advice. Be sure that you consult a real estate attorney for assistance with your individual situation.