- A lender's claim for the shortfall is generally an action on the covenant to repay, with a limitation period of the later of 10 years from the cause of action and 10 years from when the liable person's interest in the land was conveyed or transferred.
- Selling the property does not by itself end the lender's debt claim.
- The lender must take reasonable precautions to get the true market value, which is central to any dispute about the shortfall.
A power of sale can end with your home sold for less than the mortgage debt, legal costs and interest. The natural question is whether the lender can still come after you for the difference, which is often called a deficiency.
The short answer is that it sometimes can. Whether it can in your case depends on your mortgage, how the sale was run and how much time has passed. This article explains the general framework in Ontario so you know what to ask.
Can the lender still sue after the property is sold?
A lender's claim for the shortfall is a claim on the covenant to repay, which is your promise in the mortgage to pay the debt. A lender does not lose the longer limitation period for a debt claim just because the mortgaged property has since been sold.
Whether a lender can actually recover a shortfall depends on the wording of the covenant and on whether the sale achieved true market value. A lawyer can review your mortgage and the sale records to confirm where you stand.
How long does the lender have to start a claim?
An action on a mortgage covenant to repay 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 or transferred. This applies instead of the two-year period in the Limitations Act, 2002, and it covers guarantees too.
That means a guarantor, such as a family member who co-signed support, may face the same longer period. Do not assume a claim has expired after two years.
The market-value duty and why it matters
A lender selling under power of sale 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.
If the price was low, the gap between the sale price and true value can be raised when the lender claims a shortfall. Questions worth asking include:
- How and for how long was the property exposed to buyers?
- Was the asking price supported by any valuation or appraisal?
- Was the sale to someone connected to the lender?
- Were you given a fair chance to find a buyer yourself?
Interest, fees and what can be added to the debt
No fine, penalty or rate of interest may be charged on mortgage arrears that increases the charge on the arrears beyond the rate payable on principal not in arrears. Interest on arrears at a rate no higher than the mortgage rate is allowed.
Private lenders may charge fees for late payments, lapsed insurance or property upkeep, and those fees are often higher than with a traditional mortgage. Ask for a full statement of how the shortfall was calculated.
If you think the sale process had defects, the buyer's title generally cannot be attacked where notice was given in professed compliance with the Mortgages Act; anyone harmed has a remedy against the lender who sold. Once the sale has closed, you are limited to a claim for damages against the lender rather than stopping the sale.
What to do next
- Keep every notice, letter, statement and email from the lender and its lawyers.
- Note the dates: when you defaulted, when the sale closed and when any demand for the shortfall arrived.
- Ask in writing for the sale price, the costs deducted and how the shortfall was calculated.
- Check whether anyone guaranteed the mortgage, because guarantees are covered by the same limitation rules.
- Speak to a lawyer before you sign any payment plan, acknowledgement or settlement, since these can affect your position.
Frequently asked questions
Can a lender sue me years after the sale?
Possibly. An action on the covenant to repay 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 or transferred. This applies instead of the two-year period.
Does selling the home wipe out what I owe?
Not automatically. A lender does not lose the longer limitation period for a debt claim just because the property has been sold. Whether the shortfall can be recovered depends on the covenant and on whether true market value was obtained.
What if I think the home sold too cheaply?
A lender must take reasonable precautions to obtain true market value as of the date of sale, and a hasty or secretive sale can cast doubt on the price. A lawyer can review how the sale was handled.
Can a guarantor be pursued as well?
The 10-year framework covers guarantees too. A guarantor should review the guarantee document and get advice before responding to any demand.
Sources
- Court of Appeal for Ontario – 2544176 Ontario Inc. v. 2394762 Ontario Inc., 2022 ONCA 529 — ontariocourts.ca
- Court of Appeal for Ontario – Sheth v. Randhawa, 2022 ONCA 89 — ontariocourts.ca
- Justice Laws – Interest Act, s. 8 — Justice Laws (federal)
- FSRA – Private Mortgages — fsrao.ca
- Court of Appeal for Ontario – Hilson v. 1336365 Alberta Ltd., 2019 ONCA 1000 — ontariocourts.ca
- Court of Appeal for Ontario – 1250140 Ontario Inc. v. Bader, 2022 ONCA 197 — ontariocourts.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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