Paying Out a Mortgage During Power of Sale in Ontario: Costs

A notice of sale is frightening, but it is also a deadline you can work with. In many cases the question is simple: how much do you have to pay to stop the sale, and is that number correct?

This article explains the timeline, what the payout can include, how to get a written statement, and how to question charges that look wrong. The exact figure always depends on your mortgage and the lender's records, so a lawyer should review it if the amounts are large or disputed.

The power of sale timeline

Where a mortgage contains a power of sale, the lender cannot give notice of exercising it until the default has continued for at least 15 days, and cannot sell until at least 35 days after the notice is given. The notice must go to every person having an interest in the property and must be in Form 1, Notice of Sale under Mortgage.

If the mortgage has no power of sale clause, the statutory power of sale applies only after three months' default and requires 45 days' notice to persons having an interest in the property.

Once a notice of sale has been given, the lender cannot start any further proceeding to enforce the mortgage until the time stated in the notice has passed, unless a Superior Court judge permits it. That period is your window to act.

What can be in the payout

To stop the lender from enforcing its acceleration clause, a borrower in default can pay the amount due under the mortgage, which means the arrears and not money that is only due later, plus the lender's necessary expenses. This applies despite any agreement to the contrary.

If you are paying out the whole mortgage and not just curing the default, the figure can be different, and a penalty for ending the mortgage early may apply. Check your mortgage agreement and ask the lender to explain each line.

How to get a payout statement

You can give the lender written notice requiring a written statement of the arrears and expenses. The lender must answer within 15 days, and if it fails to do so without reasonable excuse, or gives an incomplete or incorrect answer, its enforcement rights are suspended until it complies.

Put the request in writing, keep proof you sent it, and write down the date. Ask for a breakdown showing arrears, interest, legal costs and any other fees, and the daily amount that applies if the figure will change before you pay.

Challenging charges that look excessive

• Compare the interest on arrears with the mortgage rate, since interest on arrears at a rate higher than the mortgage rate is not allowed.
• Look for extra fines or penalty rates on late payments, which the Interest Act restricts on arrears.
• Ask what each legal or other expense was for and why it was necessary.
• If the lender sells, it must take reasonable precautions to obtain the true market value of the property as of the date of sale, and a hasty or secretive sale can cast doubt on whether a proper price was obtained.

Timing matters. Once the power of sale closes, the right to stop enforcement by paying under s. 22 no longer applies, and the borrower is limited to a claim for damages against the lender. Where a notice was given in professed compliance with the Mortgages Act, the purchaser's title cannot be attacked because of a defect in the sale process, and anyone harmed has a remedy against the lender who sold. That protection does not extend to a purchaser who had actual notice of the defects in the sale process.

If the sale proceeds do not cover the debt, a lender's claim 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. A lender does not lose that longer period just because the property has been sold.

What to do next

• Note the date on the notice of sale and count the 35 days.
• Send a written request for a statement of arrears and expenses.
• Compare each charge against the points above.
• Gather your mortgage, payment records and any letters from the lender.
• Contact a lawyer promptly, before the sale closes.
• Consider other options with the lender, such as a sale you arrange yourself, which the lender may allow at fair market value with usually up to 90 days to stay.

Frequently asked questions