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: […]
Read moreSignificant Deficiencies in Pre-Construction Amounting to a Breach of Contract by the Vendor
The Ontario Court of Appeal recently held that the Ontario New Home Warranties Plan Act does not preclude home buyers from taking legal action against builders for breaches beyond the statutory warranties provided by the Act. This landmark decision has significant implications for home buyers and builders alike. Fundamental Breach of Agreement of Purchase and Sale (APS) For a fundamental breach of an Agreement of Purchase and Sale (APS) by the vendor to occur, the deficiencies must be so severe that they cannot be remedied, or there must be a significant breakdown of trust between the contractor and homeowner. In 2002759 Ontario Ltd et al. v Koropeski et al, it is established that fundamental breach is a high threshold; mere deficient work does not entitle a party to terminate a contract. The deficiencies must constitute a breach of contract or demonstrate that the contractor is unwilling or unable to perform their work. Currently, there are no cases that discuss the breakdown of the contractor-homeowner relationship resulting in a loss of trust or faith as grounds for the transaction not proceeding. The prevailing case law focuses on severely deficient work. Minor deficiencies do not justify stopping the transaction; the deficiencies must be substantial. Caveat Emptor “Caveat emptor,” meaning “buyer beware,” is a basic contractual principle. However, there are exceptions in the context of building deficiencies due to the disparity in information, knowledge, and expertise between vendors and purchasers. Builders are in the best position to understand the building’s integrity, which most purchasers cannot detect, even with an inspection. Some of these exceptions include: The building being incomplete at the time of sale. Fraud on the part of the vendor. The building being substantially different from the building that was the subject of the contract of sale. The vendor has an obligation to satisfy material obligations under an APS agreement, ensuring the building is up to par and consistent with what was agreed upon. Reasonable Opportunity The law requires contractors to be given reasonable opportunities to correct their deficiencies and mistakes before the vendor can claim against them in the courts of law. This is supported by TIF Mechanical Limited v Ortolli v Lobello, which states that contractors should be afforded these opportunities unless they are in breach of contract. Contractors deserve a fair and reasonable opportunity to correct their mistakes, as a deficiency alone does not constitute a breach of contract. Without this opportunity, contractors cannot be denied payment for their work. In Rocksolid v Bertolissi, it is established that a vendor cannot prevent a contractor from entering the property after uncovering a deficiency, as this could be considered a breach and repudiation by the vendor. However, contractors must remain ready, willing, and able to fix these deficiencies and complete the contract. If the vendor does not allow for reasonable opportunity for correction, it could negatively impact their outcome in court. However, if there are numerous deficiencies that render the property non-compliant with the terms of the APS, this may be determined to be a fundamental breach of the contract. This would exempt the owner from providing the contractor a reasonable […]
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