How Power of Sale Affects Your Credit Score in Ontario

If your mortgage lender has started or finished a power of sale, it is natural to worry about your credit. A mortgage is usually the largest debt a household has, and a default can feel like the end of your borrowing future.

The reality is more measured. Credit reports follow bureau practice, and the details depend on what your lender reports and when. This article explains what is generally reported, how long different items stay, and practical ways to rebuild so you can qualify for a mortgage again.

What a power of sale is, in plain terms

A power of sale is the process that lets a lender sell your home when you have defaulted on the mortgage. Ontario's guidance says a lender with a power of sale in the mortgage may sell once you have been in default for at least 15 days and at least 35 days' notice has been given to everyone with an interest in the property.

If the mortgage has no power of sale clause, the statutory power of sale in Part II of the Mortgages Act applies, after three months of default and 45 days' notice to interested persons.

When the home sells, the money goes first to the principal and interest owed to the lender, the expenses of the sale, and other encumbrances in order of priority. Any remaining surplus goes to you. How this applies if the sale price does not cover everything depends on your situation, so it is worth confirming with a lawyer.

What may show up on your credit report

What appears on your report depends on what your lender and the bureaus record. The best way to know is to request your own reports from the credit bureaus and read them line by line.

The Financial Consumer Agency of Canada summarizes how long common items stay on a report. These are bureau practices rather than statutes, and they can vary by bureau and province.

Acting early, before arrears pile up, is usually the best way to limit harm.

Bankruptcy and consumer proposals are separate steps

Some owners consider a bankruptcy or consumer proposal to stop a sale. These do not automatically protect the home. Bankruptcy does not prevent a secured creditor, such as a mortgage lender, from realizing on its security, although a court may order otherwise. Filing a consumer proposal likewise does not prevent a secured creditor from dealing with its security unless the court orders otherwise.

A consumer proposal is available where total debts do not exceed $250,000, not counting a mortgage on the principal residence, and the term cannot exceed five years. The debtor keeps assets provided payments to secured creditors are made.

Each of these has its own credit consequences, as shown in the table above, and outcomes vary by situation. A Licensed Insolvency Trustee can explain whether either option makes sense for you.

Rebuilding your credit for a future mortgage

Rebuilding is mostly about showing steady, on-time behaviour over time. No step guarantees a result, and lenders apply their own income and credit tests. Common building blocks include the following.

• Pay every remaining bill on time, including rent, phone, utilities and credit cards.
• Keep card balances well below your limits.
• Avoid applying for lots of new credit in a short period.
• Dispute errors on your credit reports with the bureau.
• Consider a small secured card or credit-builder product, and use it lightly and pay it in full.
• Save a larger down payment, since equity and cash on hand matter to lenders.

When you do look for a new mortgage, check that any mortgage agent or broker is licensed. FSRA does not issue paper or PDF copies of licences, so status is confirmed through FSRA's public registry, reached through the Mortgage Brokering section of fsrao.ca. FSRA also publishes consumer warnings naming unlicensed operators offering mortgage brokering services in Ontario.

What to do next

• Request your credit reports from both major bureaus and note every negative entry and its date.
• Gather your mortgage statements, notices of sale and any lender letters.
• Speak with a real estate lawyer early if a sale is pending or a shortfall is claimed.
• Speak with a Licensed Insolvency Trustee if other debts are also out of control.
• Make a budget that lets you pay all remaining bills on time.
• Set a calendar reminder to review your reports every few months as entries age off.

Frequently asked questions