Your Home Is Being Sold Under Power of Sale in Ontario

Hearing that your home is being sold under power of sale is frightening. The process is governed by Ontario's Mortgages Act, which sets minimum time periods and gives you some rights.

This article walks through the usual timeline, what you can still do, and special situations such as spouses, tenants and condo liens. Every file is different, so speak with a lawyer quickly.

The notice periods

Where a mortgage contains a power of sale, the lender cannot give notice of exercising the power of sale until the default has continued for at least 15 days, and cannot sell until at least 35 days after the notice is given.

The 35-day notice of sale must go to every person having an interest in the mortgaged property. It must be in Form 1, Notice of Sale under Mortgage, prescribed by O. Reg. 814/21.

• No power of sale clause in the mortgage: the statutory power under Part II applies only after three months' default and requires 45 days' notice to persons with an interest.
• Execution creditors: the notice may be addressed to the lawyer who issued the execution, or to the creditor if there is no lawyer.

A notice sent in the manner the statute prescribes is not defective just because the recipient never received it. Service rules matter, though: in one case a notice of sale was found invalid because it was not served personally as the statute required in that case.

What you can still do

A borrower in default can stop the lender from enforcing the acceleration clause by paying the amount due under the mortgage, meaning the arrears, plus the lender's necessary expenses.

You can also give the lender written notice requiring a written statement of the arrears and expenses. The lender must answer within 15 days. If it fails to do so without reasonable excuse, or answers incompletely or incorrectly, its enforcement rights are suspended until it complies.

Timing matters. Once the power of sale closes, this right no longer applies, and you are limited to a claim for damages against the lender.

Your protections during the sale

After a notice of sale has been given, the lender cannot start any further proceeding to enforce the mortgage until the time in the notice has passed, unless a Superior Court judge permits it. The Court of Appeal has held that a lender's possession could not be lawful until after the notice period expired. Whether and when a lender may take possession of your home also depends on the terms of your mortgage and the facts of your file. How these fit together in your situation is worth confirming with a lawyer.

The lender must take reasonable precautions to obtain the true market value of the property as of the date of sale. A hasty or secretive sale can cast doubt on whether a proper price was obtained.

A writ of possession may be issued only with leave of the court.

Once a sale closes, a buyer's title generally cannot be attacked because of a defect in the process where notice was given in professed compliance with the Act. Anyone harmed has a remedy against the lender. That protection does not extend to a buyer who had actual notice of the defects.

Spouses, tenants and condo liens

• Spouses: a spouse with no ownership interest in the matrimonial home but with a right of possession has the same right of redemption or relief against forfeiture as the owner-spouse, and is entitled to the same notice.
• Tenants: a lender that becomes mortgagee in possession, or gets title by power of sale, is deemed to be the landlord under an existing tenancy. On the lender's application, the Superior Court of Justice may vary or set aside a tenancy the borrower entered into in contemplation of or after default to discourage the lender from taking possession or to reduce the value of its interest, and the judge must consider the interests of both the tenant and the lender.
• Condo owners: a registered common-expense lien has priority over an earlier mortgage. It loses priority if not registered within three months or if mortgagees were not given written notice. The corporation can start its own power of sale 15 days after registering the lien.

A lender may also claim a shortfall after sale. That claim must be started within the later of 10 years after the cause of action arose and 10 years after the liable person's interest in the land was conveyed. Whether a shortfall can be recovered depends on the mortgage and on whether the sale achieved true market value.

What to do next

• Keep every notice and note the date and how it arrived.
• Check that the notice is on Form 1 and names everyone with an interest.
• Ask the lender in writing for a statement of arrears and expenses.
• Work out whether you can pay the arrears and expenses before the sale closes.
• Talk to a lawyer now. Which notice period applies to you depends on whether your mortgage has a power of sale clause.

Frequently asked questions