Our lawyers have extensive experience assisting lenders with Power of Sale proceedings. Call us now at (437) 222-2234 to see how we can help you.
Frequently Asked Questions
The main advantage of offering mortgages as a private lender is that your investment is secured by real estate. In the event that the borrower defaults on their mortgage, you can always exercise mortgage enforcement remedies such as a Power of Sale to recoup your funds.
The following are answers to some of the most frequently asked questions about the Power of Sale process in Ontario.
What is Power of Sale?
Power of Sale is a contractual remedy allowing you, the lender, to sell the mortgaged property in the event that the borrower stops making their mortgage payments.
What are the Steps Involved?
The process usually starts with a demand letter, requesting that the borrower pay the mortgage arrears.
If the borrower has been in default for at least 15 days, then you can start the Power of Sale process by sending out a Notice of Sale Under Mortgage to the borrower as well as anyone else with an interest in the property (such as the borrower’s spouse, other secured lenders, etc.). This lets the borrower know that, if they don’t pay the arrears, interest, and fees, then you will sell the property.
The borrower then has 35 clear days to bring the mortgage into good standing. During this time, called the redemption period, you as the lender cannot take any steps, such as getting an appraisal of the property.
If the borrower fails to bring the mortgage into good standing after the redemption period, you can then have the property listed and sold by a realtor.
When the Property is Sold, Who Gets What?
Section 27 of the Mortgages Act sets out the distribution of the sale proceeds.
First, the expenses from the sale are paid, such as the realtor’s fees.
Next, the interest and costs are paid (costs being the money paid to the lawyer to prepare and serve the Notice of Sale Under Mortgage).
Then the principal of the mortgage is paid.
Then subsequent encumbrancers, such as other secured lenders (also known as mortgagees), are paid.
Then, if tenants have prepaid any rent, they’ll be reimbursed.
Finally, if there is anything left over, it goes to the borrower.
What if There Isn’t Enough Money from the Sale to Pay the Mortgage?
If there isn’t enough equity in the property to pay off the loan, the lender can bring a court action to recover the difference.
Depending on how much is left owing, the action may be brought in Small Claims Court (amounts less than $25,000.00) or in the Superior Court of Justice (amounts over $25,000.00).
How Do I Get the Borrower Out of the Property?
In the best-case scenario, the borrower will simply move out and give you the keys when they realize they can’t keep up the payments. Most of the time, though, the borrowers will stay in the property until forced to leave. This requires a court action for vacant possession.
Note that you can’t do anything, including commencing an action for possession and/or the shortfall, during the redemption period.
For this reason, it usually makes the most sense to start the court process first, before sending out the Notice of Sale Under Mortgage, rather than sending out the Notice of Sale Under Mortgage and having to wait around for 35 days before you can get the court process started.
At Powell Litigation, we follow a step-by-step process to get lenders their funds as quickly and cost-effectively as possible. To contact us about your Power of Sale situation, simply call us at (437) 222-2234 or fill out the contact form on this page. We look forward to hearing from you!