When a mortgagor has defaulted under a mortgage, the mortgagee has a number of remedies to choose from: power of sale, judicial sale and foreclosure. In a power of sale, the mortgagee conveys the property to a purchaser free and clear of any interest of the mortgagor and any person having an interest in the mortgaged property in subsequent to the mortgagee. A judicial sale achieves the same result. In a foreclosure, the mortgagee becomes the owner of the property and other parties who have interest in the property will lose their interest.
Generally, a mortgagee is required to give the mortgagor notice of any breach of covenant that constitutes a default together with a reasonable time for the mortgagor to remedy the breach prior to issuing a notice of sale. The Mortgages Act(Ontario)provides that notice of the exercise of the power of sale shall not be given until the default has continued for at least 15 days and the sale shall not be made for at least 35 days after the notice has been given. The notice of sale is mailed to every party shown as a mortgagor and guarantor for the mortgage, as well as to the parties who have an interest in the mortgaged property. If the breach of the mortgage is not a default of payment of principal and/or interest, the mortgage should be reviewed to determine whether it is a sufficient basis to initiate the power of sale proceeding.
If the borrower does not pay what is owed prior to the expiry of the redemption period, the lender can bring an action against the borrower with a statement of claim for the collection of the debt and for possession of the property. Once the statement of claim is served and filed as per the Rules of Civil Procedure, if the borrower does not file the statement of defence, then the lender can obtain a default judgment from the registrar. After the signing of the default judgment, the borrower can bring a court motion to allow for the issuance of a writ of possession. Once the writ of possession is issued, the lender can deliver it to the sheriff in the jurisdiction where the property is located. The sheriff then schedules a date with the mortgagor to vacate the property, otherwise, the sheriff will attend and arrange for the removal of the occupants.
Once the lender takes possession of the home, the lender can initiate the sale process. In a power of sale, when the sale is completed and the sales proceed is received, it is paid out in the following order: the expenses incurred by the lender in selling the property are paid first; Payment of the lender’s principal, interest, and other sums to which the lender is entitled to are the next to be paid; if any funds are left over, then the payment will be made to the subsequent mortgagees, lien claimants and execution creditors in priority in which they are registered. The homeowner only receives funds if there are proceeds remaining after paying the foregoing parties.
This article intends to provide an overview of the power of sale process in Ontario and does not constitute any legal advice. If you face any mortgage default and require any assistance either as a lender or a mortgagor, we recommend you speaking with our real estate lawyers for advice tailored to your situation.
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