More than 750,000 Canadians have taken advantage of mortgage deferrals offered by banks and other lenders this year. Yet many of these programs have ended or will be ending soon, which will leave borrowers on the hook for the deferred payments and new payments.
Some experts predict a “mortgage cliff,” which will find many homeowners in mortgage arrears. That could lead some into the power of sale process.
What is power of sale in Ontario, and what does the process look like? More importantly, if you’re a homeowner in arrears, you want to know how you can stop power of sale and keep your home.
This guide has the answers you’re looking for, as well as advice on how you can avoid power of sale.
“Power of sale” refers to a clause written into most mortgages. It legally gives the mortgage lender the right to sell the property if you fall behind on mortgage payments.
Power of sale is the most common remedy lenders use to recoup the money they loaned when a borrower defaults. Since property has value and can be sold, it’s often a straightforward way for the lender to ensure they get their money.
Power of sale might sound like another process you’ve heard of: foreclosure. When people lose their homes due to defaulting on their mortgage, you might hear them say that the bank foreclosed on the house.
What is the difference between power of sale and foreclosure? Are they the same thing?
Although they might seem similar at first glance, they’re two different legal processes. Power of sale allows the lender to take control of the property and sell it. It also gives the lender the right to evict the homeowner.
Foreclosure, by contrast, gives the lender legal title to property. That means the lender becomes the legal owner of the property. They’ll assume all debts and liabilities, such as property tax arrears or liens.
Most often, a foreclosure still ends with a sale, since that lets the lender recoup their money. Foreclosure tends to be slower and more costly, which is why lenders prefer power of sale. The power of sale process typically takes just 90 days to complete.
The power of sale clause allows a mortgage lender to take control of a property if a borrower has fallen behind on their payments.
When a lender invokes the power of sale clause, the first step in the process is to issue a demand letter. This type of letter will outline what the lender wants from you to restore the mortgage to good standing.
In Ontario, most lenders will send the borrower a “Notice of Sale under Mortgage.”
What is a notice of sale under mortgage? It’s a document that works as a demand letter, asking for repayment. In the notice of sale, the lender will declare that the mortgage is in default.
The notice will also include:
Typically, this will include your missed mortgage payments, as well as any penalties.
The notice of sale is drawn up 15 days after the initial default. The deadline for payment of the identified items is usually around 30 days.
This is known as the redemption period. It’s your chance to bring your mortgage back into good standing and stop power of sale processes from continuing.
If a homeowner can’t pay their mortgage arrears and bring the mortgage back into good standing within the specified redemption period, the lender and their law firm will move to the next step.
The second step in the power of sale process is for the law firm representing the lender to issue a statement of claim.
What is a statement of claim? It’s a lawsuit filed with a local Small Claims Court or the Superior Court of Canada. It asks the courts to determine default and rule in favour of letting the lender take possession of the property.
The statement of claim is a legal document. It also provides notice to anyone else with a stake in the property. You’ll have 20 days to file a statement of defence with the court after the lender files their suit.
Once the redemption period has lapsed, the lender may demand repayment of the mortgage in full to stop power of sale.
The law firm representing the lender can then also issue a writ of possession. This is a legal document that allows them to appoint a sheriff to evict you from your home.
After a local sheriff has issued an eviction notice, you’ll have a certain amount of time to vacate the property. Your home will then be in the lender’s possession.
At this point, the clock is ticking for homeowners who want to stop the power of sale process. You’ll need to act quickly to remedy the situation.
The best advice for how to avoid power of sale altogether is to sell your house on your terms. If you’re concerned about being able to make your mortgage payments, then selling will allow you to pay the mortgage off. You can then look for a property that would be more manageable or even consider renting.
If you’re at risk of falling behind on mortgage payments and selling isn’t an option, then talk to your lender. Is it possible for you to get them the money in two payments? Is there a way to make payments more manageable or even defer them a little longer?
If you’ve missed a mortgage payment already, it’s imperative to speak to your lender as soon as possible. Remember that a notice of sale will be issued after just 15 days.
Once the process has started, you’ll have more limited time and more limited options.
If you’ve already received a notice of sale under mortgage, then you have a few options. The first is to pay the lender’s demands, as outlined in the demand letter.
Swift action at this point could keep the lender from progressing with the power of sale. Keep in mind that legal and administrative fees will add up as the process moves forward.
These fees will be charged back to the mortgage. That means you’ll be expected to pay them as well. Stopping power of sale as soon as possible is the best way to keep these fees from adding up and making it more difficult to bring your mortgage into good standing.
How can you stop the power of sale? You may want to consider a loan to stop power of sale. If you’ve been in your home for some time, you should have some equity in the property.
You can use home equity to pay mortgage arrears. By doing so, you can bring your mortgage back into good standing and avoid power of sale. This is sometimes known as a second mortgage to stop power of sale.
If you have good credit, you may be able to take out a personal loan. You may also have available credit, such as a line of credit or even a credit card, which can help you avoid power of sale.
If these options aren’t available, then you may have savings you could use to bring your mortgage back into good standing.
Once the redemption period is over, you may be afraid you’ll lose your home. There are still steps you can take to stop power of sale.
You may be able to pay your arrears and costs in court. If you were unable to come up with the financing before the redemption period expired, then going to court could bring the mortgage back to good standing.
Some lenders will demand repayment of the mortgage in full, plus any penalties and costs, at this point. A private mortgage to stop power of sale could be the solution. This allows you to pay off the existing mortgage and place the property under a new one.
Your best bet here is often to go to a mortgage broker. They can help you find lenders who are willing to extend the funds you need to cover the mortgage and any added costs.
Bringing the mortgage back into good standing is the best advice for how to avoid eviction.
You can pay arrears until the lender enters into an unconditional agreement of purchase and sale with a new buyer. If that agreement contains a redemption clause, though, you can pay off the mortgage and stop the sale.
It’s best to stop the process as soon as possible. As mentioned, the lender and their law firm will charge any fees associated with the power of sale process back to the mortgage. You’ll be responsible for covering them if you want to pay arrears or pay the mortgage off.
In rare cases, there may be a legal remedy to helping you stop power of sale and avoid eviction.
The lender must wait for the appropriate period to pass before they can progress through the power of sale process. If they take any step too soon, you can argue they acted in haste.
An example might be a lender who issues a demand letter after 10 days instead of 15 days. The lender is acting in haste, trying to start the power of sale process too soon.
Another example would be a lender who issues a statement of claim or a writ of possession before the redemption period is over.
If the lender has acted in haste, then the entire process can be nullified. The lender would then need a court order to continue.
As the homeowner, you also have a right to information. You can request a statement of account and information about the power of sale proceedings. If the lender doesn’t respond within 15 days, the process may be suspended.
If the lender responds to a request for information, but the information they provide is incomplete or incorrect, then the process can also be suspended.
In most cases, lenders will follow the letter of the law to avoid situations like this. It’s always a good idea to have legal representation on your side to make sure the correct process is followed.
If you’re unable to stop power of sale, then the lender will sell your house. They use the proceeds of the sale to cover off whatever was owed on your mortgage.
What if the house sells for more than the remaining value of the mortgage? There are other costs that need to be covered, but any remaining proceeds belong to you.
Typically, there’s very little left over after the power of sale process. That’s because fees are charged back to the mortgage. These include:
If there are any outstanding liens on the property, then those must also be paid.
As you can see, the fees associated with power of sale can add up. If the sale of the house doesn’t cover the mortgage and all the fees, then you’ll be responsible for paying the difference.
As a result, it’s often a better solution to find a private mortgage to stop power of sale. You can stop the process, avoid extra fees, and keep your home.
Avoiding power of sale is going to be on the minds of many homeowners in Ontario in the coming months. If you’re concerned about your ability to pay your mortgage, taking steps now can help you avoid power of sale.
If you’re already behind, then it’s time to take action. Get in touch with the experts and learn more about the options you have to stop power of sale and keep your home.
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