Are you aware that over 800,000 Canadians used mortgage deferrals from banks and lenders in 2021? These programs are ending soon, so borrowers will have to start making deferred payments and new ones.
On the other hand, lenders must protect their interests, so they have the right to take action against homeowners who default on their mortgages. One of these actions is known as Power of Sale. In Canada, this process allows a lender to sell your home to recover the debt if you fail to make payments.
Curious about the power of sale and how it works? Let’s take a closer look at the power of sale process in Ontario. In this post, we’ll explain how it works and share tips for homeowners dealing with financial challenges.
What is Power of Sale?
Power of sale is a clause found in many mortgages, allowing the lender to sell your property if you miss mortgage payments. It’s a common way for lenders to recover their loaned money since they can sell the property to get paid.
Foreclosure vs Power of Sale: Understanding the Difference
Power of sale is common in Ontario, PEI, New Brunswick, and Newfoundland, while in the rest of Canada, like Quebec, BC, and Alberta, foreclosures are more popular. While some may use “foreclosure” for both, they differ in how homes are sold.
|Power of Sale||Foreclosure|
|Legal Process||Allows the lender to sell the property under their control.||Gives the lender legal ownership of the property, making them the owner.|
|Homeowner Eviction||Allows the lender to evict the homeowner.||Typically results in the lender taking ownership, which may lead to eviction.|
|Debts and Liabilities||Lenders may still hold the homeowner responsible for debts and liabilities, such as property taxes arrears and liens.||The lender assumes ownership of the property along with all debts and liabilities, including property taxes and liens.|
|Speed and Cost||Usually, a faster and less expensive process for lenders.||Often a slower and more expensive process for lenders.|
|Transaction Timeline||Typically completed in 90 days or less.||Timelines can vary, often resulting in a sale to recoup the lender’s funds.|
In this table, you will understand the distinction between foreclosure and power of sale. As a homeowner, it’s imperative to clearly grasp the differences, as they are two separate legal procedures.
Understanding the Power of Sale Process
The Power of Sale process permits a mortgage lender to assume control of a property when the borrower misses payments. Here’s a step-by-step overview of its functioning:
1. Notice of Sale Under Mortgage
Borrowers typically receive a “Notice of Sale under Mortgage,” which is essentially a demand letter for repayment, noting the mortgage default.
- A checklist of items to be paid.
- The deadline for paying these items often includes missed mortgage payments and penalties.
- The notice of sale is usually drawn up 15 days after the default notice, with most payments due within 30 days.
2. The Notice of Claim, Writ of Possession, and Sheriff’s Eviction
If the mortgage arrears remain unpaid during the redemption period, the lender’s law firm proceeds to the next steps:
- Statement of Claim: This legal document is filed in court, seeking possession of the property and notifying other stakeholders.
- Writ of Possession: After the redemption period, the lender’s law firm can issue this document, allowing a sheriff to evict you.
3. Power of Sale
Once served with an eviction notice, you must vacate the property. At this point, your lender takes possession. Taking swift action is crucial for homeowners looking to halt the Power of Sale process.
Homeowners must act promptly to stop the Power of Sale process now. Immediate action is essential.
How To Prevent Power of Sale Canada
Stopping a Power of Sale process in Ontario can be challenging, but there are several options to consider, depending on your circumstances:
1. Refinancing Using a Second Mortgage
If you have positive equity in your home, you can secure a second mortgage to cover the arrears. Ensure you can manage the new monthly payments before proceeding with this option.
2. Modifying Your Mortgage with an Alternate Lender
Negotiating a longer amortization period with a new lender can reduce your monthly mortgage payments, making them more manageable. Consider consulting a trusted mortgage broker if your current financial institution is uncooperative.
3. Downsize or Independently Sell Your Home
If high mortgage payments are the root of your financial troubles, selling your current home and purchasing a smaller property may be a solution. Alternatively, you can explore renting until your financial situation stabilizes.
4. Resolve Other Debts via a Consumer Proposal
If unsecured debts are causing financial strain, you can leverage your home equity to propose reduced payments to your creditors. This can free up funds to make your mortgage payments more affordable.
5. Maintaining Homeownership Through Bankruptcy
While a consumer proposal is preferable, you can still keep your home and file for bankruptcy if it’s the best way to eliminate unmanageable unsecured debt. Ensuring you can continue making mortgage payments is crucial.
6. File Insolvency and Address Shortfall
This is the least among the options and last resort. But if worse comes to worst and the amount you owe on your mortgage is higher than your home’s value, you can return the property to your lender. Any remaining deficit can be eliminated through bankruptcy or a consumer proposal.
Your choice depends on your financial circumstances and goals. We strongly advise you to seek guidance from a financial advisor or legal expert to ensure an informed decision.
Legal Solutions to Prevent Power of Sale
In some exceptional cases, there are legal remedies to halt the power of sale and avoid eviction. The key is to ensure the lender follows the proper timeline and procedures.
If the lender acts too quickly, like issuing a demand letter before the specified waiting period or filing a claim before the redemption period ends, it can nullify the process, requiring a court order to proceed.
As a homeowner, you have the right to request information about the power of sale proceedings. The process can be suspended if the lender doesn’t respond promptly or provides incomplete or incorrect information.
Consequences of Your Lender Selling Your House
If you can’t stop a power of sale, your lender will sell your house to recover what you owe on your mortgage. The extra goes to you if the sale price exceeds the mortgage amount.
However, power of sale usually leaves little surplus due to fees like:
- legal fees (up to $30,000)
- real estate fees
- arrears penalties
- administrative charges
Any outstanding liens on the property must also be paid. If the sale doesn’t cover the mortgage and fees, you’re responsible for the difference.
Protect Your Home – Explore Your Options to Stop Power of Sale in Ontario Today
The power of sale process in Canada is a complex journey with significant consequences for your property and financial well-being. Your home is not just an investment but your sanctuary and future.
By taking informed action today, you can protect your home and ensure a more stable tomorrow for you and your loved ones. At Home Equity Loan, we’re here to guide you through this challenging journey. Contact us today, and let’s work together to ensure your home remains yours to keep.