- A lender with a power of sale clause may sell after 15 days of default and at least 35 days' notice to everyone with an interest.
- A lender or purchaser who takes over a tenanted residential complex through power of sale is deemed to be the landlord under the tenancy agreement.
- A sale does not by itself deliver possession, and a writ of possession needs leave of the court.
- Any surplus after the lender, sale expenses and other encumbrances goes to the mortgagor.
If you own an investment property and have fallen behind on the mortgage, you may worry about two things at once: losing the property and what happens to your tenants. The rules for lenders do not disappear because the property is a rental.
This article walks through the lender's steps, what happens to tenants, and what to do now. Your mortgage terms matter, including any clause about rents, so have a lawyer review the documents.
The lender's steps
If the mortgage contains a power of sale clause, the lender 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. Without such a 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.
The notice is given on Form 1, Notice of Sale under Mortgage. The sale papers must include a solicitor's declaration naming everyone entitled to notice and stating they were served, plus declarations of service.
The advance notice rule in s. 244 of the Bankruptcy and Insolvency Act applies to security over business property such as inventory and receivables, and does not apply to an ordinary home mortgage. Whether it could matter for an investment property depends on the facts and the security, so ask a lawyer.
Rents and your mortgage terms
Your mortgage or other security may say something about rents if you default. Whether yours does, and how the lender may use it, depends on the wording of your mortgage and any separate security. Read it and have a lawyer confirm.
Whether anyone contacts your tenants about rent depends on your mortgage and situation, so it is worth confirming with a lawyer. If you receive notices like this, keep copies and tell your tenants only what a lawyer advises, so that rent is not paid twice or misdirected.
What happens to your tenants
A person who becomes mortgagee in possession of a mortgaged residential complex that is subject to a tenancy, or who obtains title by foreclosure or power of sale, is deemed to be the landlord under the tenancy agreement. So the tenancy does not simply vanish because the lender is enforcing.
A sale also does not guarantee an empty property. Sheriff's sale notices in the Ontario Gazette state that vacant possession is not included in the sale, and a sale does not by itself deliver possession. A writ of possession may be issued only with leave of the court, which may be granted only if everyone in actual possession of any part of the land has had sufficient notice to seek relief. The writ stays in force for one year and can be renewed for further one-year periods.
What rights a new owner has to end a tenancy, for example for personal use, is a question for a lawyer familiar with the Residential Tenancies Act.
Money, surplus and other debts
Sale proceeds go 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 the mortgagor.
| Issue | What to know |
|---|---|
| Bankruptcy | Bankruptcy does not prevent a secured creditor from realizing on its security, unless a court orders otherwise |
| Consumer proposal | Filing does not prevent a secured creditor from dealing with its security, unless the court orders otherwise |
| Consumer proposal limit | Total debts must not exceed $250,000, not counting a mortgage on the principal residence; term up to five years |
| Credit report | A consumer proposal is removed 3 years after included debts are paid or 6 years after signing, whichever comes first |
A Licensed Insolvency Trustee can explain whether a proposal or bankruptcy makes sense. Note that the $250,000 limit excludes only a mortgage on the principal residence, so a rental property mortgage may be treated differently.
What to do next
- Gather the mortgage, any rent-related security, and every notice from the lender
- Prepare a list of tenants, leases and the rent each pays
- Keep a record of rent received and where it was paid
- Contact the lender early to discuss catching up, refinancing or a voluntary sale
- Speak to a real estate lawyer before the notice period runs out
- Consider a Licensed Insolvency Trustee if other debts are also a problem
Spousal rights can also matter if the property is or was a matrimonial home, since a spouse with a possession right gets the same notice of enforcement.
Frequently asked questions
Do my tenants have to leave if the lender sells?
Not automatically. A person who obtains title by power of sale of a residential complex subject to a tenancy is deemed to be the landlord under the tenancy agreement. Whether a new owner can end a tenancy depends on the Residential Tenancies Act and the facts.
How long do I have before the lender can sell?
With a power of sale clause, the lender may sell once you have been in default for at least 15 days and at least 35 days' notice has been given. Without one, the statutory process applies after three months of default and 45 days' notice.
Will bankruptcy stop the sale?
Bankruptcy does not prevent a secured creditor from realizing on its security, unless a court orders otherwise. A consumer proposal works the same way in this respect.
Do I get anything if the property sells for more than I owe?
Any remaining surplus after the lender, the sale expenses and other encumbrances goes to the mortgagor.
Sources
- Ontario.ca – Power of sale assignments — ontario.ca
- Ontario.ca – Land Registration Bulletin 2003-1 Powers of Sale — ontario.ca
- O. Reg. 814/21 (Forms) – e-Laws — Ontario e-Laws
- Family Law Act, R.S.O. 1990, c. F.3 (CanLII) — canlii.org
- Mortgages Act, R.S.O. 1990, c. M.40 (CanLII) — canlii.org
- Rules of Civil Procedure, Rule 60.01-.10 commentary (CanLII) — canlii.org
- Ontario Gazette – Sheriff's Sale of Lands — ontario.ca
- Bankruptcy and Insolvency Act, s. 69.3 – Justice Laws — Justice Laws (federal)
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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