The Power of Sale proceedings in Ontario are generally quite speedy, as the proceedings are usually laid out in the mortgage documents. Power of sale was initially developed in Ontario by lenders who wanted a faster way to dispose of property and to recover the debt. As a result, they began to include power of sale provisions in mortgages that would allow them to dispose of the property under the borrower’s default, without having to resort to the Courts. Power of sale is now part of the Ontario Mortgages Act.
Power of Sale Ontario
The Mortgages Act refers to two types of power of sale: Contractual and statutory. Contractual power of sale is when the mortgage documents have included the power of sale provisions. Statutory power of sale is when the power of sale provisions are not included in the mortgage documents. While statutory power of sale is very rare, the lender can still exercise power of sale as long as the borrower has been in default for three months or longer.
Both types of power of sale are started by giving a notice to the borrower after 15 days of default. The notice must be given to anyone who has an interest in the property, including subsequent encumbrancers, statutory lien holders, or people who have advised the lender in writing that they have an interest in the property.
The notice is attached to the Mortgage Act, and is called a Notice of Sale under Mortgage. It informs of the lender’s intention to exercise the power of sale, and includes all the details of the mortgage, such as:
- The date the mortgage was made
- The parties to the mortgage and the property mortgaged
- The amounts owing
- A warning that if the amounts owing are not paid by a specified date, the lender will sell the property
If the power of sale is contractual, the borrower has 35 days to pay, unless otherwise stated in the mortgage agreements. If the power of sale is statutory, the borrower has 45 days to pay. The lender cannot take any further action during this redemption period. During this time, by paying the amounts owing, the borrower can redeem the mortgage, and bring it back into good standing
Once the redemption period has expired and the borrower has failed to correct the default, the lender can then sell the property. Under power of sale, the property can be sold by auction, private contract, or by tender. Usually the property is listed with a real estate agent and placed on the market for sale. To ensure that the property comes to the attention of a large segment of the market, guidelines have been set up, including:
- Listing the property with a multiple listing service
- Obtaining appraisals
- Ensuring the listing is for the usual period of such properties
If there is any surplus after the property is sold, then the lender must account to the borrower(s), and other subsequent encumbrance’s. The Mortgage Act requires that the proceeds of the sale be applied in a specific order:
- First be applied to the cost of conducting the sale
- Then to interest and cost owing under the mortgage
- Then to the principal money owing under the mortgage
- Next to pay any amounts due to subsequent encumbrance’s
- Then finally to pay tenants’ security deposits.
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The above information is provided as a guideline and is not intended to give a professional legal advice. Please consult a real estate lawyer for their opinion on your particular case.
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