What is the power of sale? It’s a default process that puts the lender in control of the sale of the property. A lender is then given the authority to sell the home or property. Powers of sale allow the lender to sell the home, but the homeowner still owns it.
Default occurs when property owners fall behind on their mortgage payments or fail to meet other mortgage terms. Taking possession of a property and selling it is now legally possible for a lender.
Banks and other lenders have offered mortgage deferrals to more than 750,000 Canadians this year. Some of these programs have ended or will end soon, so borrowers must make both deferred payments as well as new ones.
Many homeowners will wind up facing mortgage arrears due to a "mortgage cliff" as predicted by some experts. Some may have to resort to the power of sale.
In Ontario, what does a power of sale look like? Additionally, if you're a homeowner behind on your payments, you may want to know how to stop the sale of your home.
This guide has the solutions you need, as well as advice on avoiding the power of sale situations.
What Is Power of Sale?
In most mortgages, there is a clause called a "power of sale". In the case of nonpayment of the mortgage, the mortgage lender can sell the property.
When a borrower defaults on a loan, lenders commonly recoup the loan amount through a power of sale. Due to the fact that property is valuable and can be sold, it is usually a straightforward way for lenders to collect their money.
How Power of Sale Differs from Foreclosure
The power of sale may sound like another process you've heard of: foreclosure. In some cases, the bank might foreclose on a house when people default on their mortgage.
Power of Sale vs. Foreclosure: How are they different? Do they mean the same thing?
It may seem like they're similar, but they're two different legal processes. A power of sale allows the lender to sell a property under their control. A power of sale also allows the lender to evict the homeowner.
In contrast, foreclosures give the lender legal ownership of the property. Therefore, they become the owner. All debts and liabilities will be assumed, such as property taxes arrears and liens.
In most cases, however, foreclosure results in a sale, since the lender is able to recoup their money. Lenders prefer the power of sale because foreclosure is usually slower and more expensive. Most power of sale transactions is completed in 90 days or less.
How does the Power of Sale Process work?
By using a power of sale clause, a mortgage lender can take possession of a property if a borrower falls behind on their payments.
First, a lender must issue a demand letter when invoking the power of sale clause. It outlines what is needed from you by the lender to return the mortgage to good standing.
Typically, in Ontario, borrowers will receive a "Notice of Sale under Mortgage."
Notice of Sale Under Mortgage: What is it?
Essentially, it's a demand letter for repayment. Mortgage default will be noted in the notice of sale.
As part of the notice, you'll also find:
- Checklist of items to be paid
- The deadline for paying the listed items. Missed mortgage payments, as well as penalties, typically fall under this category.
- After the default is notified, the notice of sale is drawn up 15 days later. Most items need to be paid for within 30 days.
- The redemption period occurs during this timeframe. Here is your chance to prevent the power of sale proceedings from proceeding and bring your mortgage into good standing.
Notice of Claim, Writ of Possession, and Sheriff's Eviction
The lender and their law firm may move to the next step if a homeowner cannot pay off their mortgage arrears and bring their mortgage back into good standing within the redemption period.
Next, the lender's law firm issues a statement of claim, which is the second step in the power of sale process.
In layman's terms, what is a statement of claim? Basically, you file a lawsuit at a local Small Claims Court or Superior Court of Canada. By default, the court asks that the lender be granted possession of the property.
Statements of the claim are legal documents. It also serves as a notice to others with a stake in the property. Your statement of defence must be filed with the court within 20 days of the lender filing a lawsuit.
To stop the power of sale, the lender may demand that the mortgage be repaid in full after the redemption period has expired.
After that, the lender's law firm will also be able to issue the writ of possession. Essentially, they can appoint a sheriff to evict you from your home using this legal document.
Power of Sale: The Last Steps
You will have an eviction notice from a sheriff and a certain time frame to vacate your property after it was served. Once that happens, your property belongs to your lender.
There is no time to waste for homeowners who wish to halt the power of sale process at this point. You have to take action immediately.
In Ontario, How to Stop Power of Sale
Selling on your terms is the best strategy for avoiding the power of sale altogether. If you're worried about paying your mortgage, selling will allow you to do so. You may then want to consider renting a property or finding a manageable property.
A lender can help you if you are at risk of defaulting on your mortgage and selling your home isn't an option.
You should contact your lender as soon as possible if any payments on your mortgage have been missed. A notice of sale is issued after only 15 days of missing a payment.
After the process has begun, your options and time will be more limited.
What to Do After You Receive a Notice of Sale to Stop the Power of Sale
You have a few choices if you've already received a notice of sale under the mortgage. Paying the lender's demands is the first step. In this situation, quick action could prevent the lender from advancing with the sale. As the process develops, legal and administrative fees will accrue.
The fees will be added to the mortgage. In other words, you'll also have to pay them. The best way to avoid these fees adding up and making getting your mortgage back on track more difficult is to stop the power of sale as soon as possible.
Power of Sale: How can you stop it?
Stopping the power of sale may require you to take out a loan. You should have some equity in your property if you've lived in it for several years.
Arrears on your mortgage can be paid with home equity. In such a way, you can avoid the power of sale and restore your mortgage to good standing. Another name for this is a second mortgage for stopping a power of sale.
A personal loan may be available to you if you have a good credit score. Furthermore, you may be able to avoid the power of sale if you have available credit, such as a line of credit or even a credit card.
There may be savings you could use if these options aren't available.
After the Redemption Period, how to stop the Power of Sale?
After the redemption period expires, you may be concerned about losing your house. It is still possible to stop the power of sale.
Your arrears and court costs may be repaid in court. In the event you were unable to come up with the financing before the redemption period ran out, a court case could result in the mortgage being reinstated.
The lender may ask for full repayment at this point, plus any penalties and costs. The solution may be a private mortgage to stop the sale. You can then pay off the existing mortgage and apply for a new one on the property.
If you're having trouble getting a loan, talk to a mortgage broker. If you need assistance finding lenders who can extend the funds for your mortgage and any added costs, they can assist you.
The best way to avoid eviction is to bring your mortgage back into good standing.
You can pay arrears up to the time when the lender enters into an unconditional agreement of purchase and sale with a new buyer. You can, however, stop the sale if that contract contains a redemption clause.
Whenever possible, you should stop the process. It has already been mentioned that the loan servicer and their law firm will charge all fees associated with the power of sale process to the mortgage. It's your responsibility to cover them if you'd like to pay off arrears or pay off your mortgage.
Stopping Power of Sale Through Legal Means
Sometimes, a legal remedy may be available to help you avoid eviction and stop the power of sale.
Until the appropriate time period passes, the lender cannot move forward with the power of sale. Any action they take too soon can be argued to be a hasty one.
A lender could issue a demand letter after 10 days instead of 15 days. Lenders are acting too quickly, starting the power of sale process too soon.
Alternatively, a lender could issue a writ of possession or a statement of claim before the redemption period has ended.
Lenders can be invalidated if they act in haste. Court orders would then be needed to continue.
Homeowners are also entitled to the information. Upon request, you can get a statement of account and information about the power of sale proceedings. During the first 15 days, the lender must respond or the process may be suspended.
Alternatively, if the lender provides incomplete or incorrect information in response to a request for information, then the process can be suspended.
To avoid situations like this, lenders will most often follow the letter of the law. Legal representation is always a good idea so that the process is followed correctly.
In the event of the lender selling your house, what happens?
In the event you can't stop the power of sale, then your house will be sold by the lender. As a result of the sale, your mortgage will be paid off.
Is it possible that the house sells for more than the amount owing on the mortgage? Besides these costs, any remaining proceeds belong to you.
Most of the time, there is not much left over after the power of sale process. This is due to fees being charged back to the mortgage.
To stop a power of sale, it's usually better to find a private mortgage. That way, you avoid additional fees and keep your home.