Power of Sale in Ontario: A Comprehensive Guide
When a borrower (the “mortgagor”) defaults on a mortgage, the lender (the “mortgagee”) has several rights and remedies available. In Ontario, one of the most common remedies is the power of sale. What is a Power of Sale? A power of sale allows the mortgagee to sell the mortgaged property at fair market value. The proceeds from the sale are then used to satisfy the mortgagor’s outstanding debt under the mortgage. This method allows the lender to recover the owed funds without taking ownership of the property. Power of Sale vs. Foreclosure Power of Sale: The mortgagee sells the property to recover the outstanding debt. The mortgagee does not take ownership of the property. The property is sold free of the mortgagor’s interest or any subsequent interests. Foreclosure: Initiated by a statement of claim served personally on the defendants. Used when the mortgage debt exceeds the property’s value. The mortgagee takes ownership of the property to satisfy the debt, forfeiting the right to sue the mortgagor or any guarantors. Any surplus from the property’s sale goes to the mortgagee. Power of Sale Process in Ontario A power of sale can be exercised either by the terms set out in the mortgage contract or under the authority of the Mortgages Act. Here’s a step-by-step overview of the process: Step 1: Borrower Defaults The power of sale process begins when the mortgagor defaults on the mortgage agreement. This could be due to a missed payment or breach of a covenant in the mortgage. The mortgagee must notify the mortgagor of the default in writing, providing an opportunity to remedy the situation. Step 2: Notice of Sale After a default period of at least 15 days, the mortgagee can send a notice of sale to exercise the power of sale. This notice includes a mortgage payout statement outlining the amount owed. Step 3: Redemption Period After issuing the notice of sale, there is typically a 35 to 45-day redemption period. During this time, the mortgagor can pay off the debt to bring the mortgage back into good standing. The mortgagee cannot take further action during this period. Step 4: Selling the Property Two key timelines must be met before the property can be sold: Three months must pass from the date of default. 45 days must pass from the notice of sale date. If the sale proceeds do not cover the full debt, the mortgagee can sue the mortgagor and any guarantors. Any surplus is distributed according to the order of priority. Step 5: Closing When purchasing a property under a power of sale, the buyer should be aware of several key differences: The property is sold “as is,” with minimal representations and warranties. The vendor provides limited closing documents. Statutory implied covenants are deleted in Ontario. A right of redemption clause allows interested parties to redeem the property. Advantages & Disadvantages of Power of Sale Disadvantages: The mortgagee may be accountable to other interested parties regarding the sale proceeds. The property must be sold at fair market value, leaving the mortgagee open to potential claims concerning the sale price. Advantages: Further proceedings: […]
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