Surplus Money After a Power of Sale in Ontario: Who Gets It

After a power of sale, former owners often ask the same question: was there anything left over? The honest answer is that it depends on the sale price and on who is owed money ahead of you.

This article explains the general order of payment, why the sale process matters, and what to ask about if you think money may be owed to you.

Is there anything left?

Whether anything is left depends on how the sale price compares with the claims that rank ahead of yours, and the exact figures are worth confirming with a lawyer. Many sales leave nothing, and some leave a shortfall.

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. A higher price means a bigger chance of a surplus, so the way the property was marketed is worth looking at.

Who is paid first

Under the Land Titles Act, registered instruments affecting the same interest in the same parcel rank according to the order in which they are entered in the register, so a second charge ranks behind an earlier registered first charge. A charge's priority can be changed by registering a postponement.

Condominium units add another layer. A registered condo common-expense lien generally has priority over registered and unregistered encumbrances on the unit, including an earlier mortgage. It loses priority over a mortgage if the corporation does not register it within three months or does not give written notice to every registered encumbrancer on or before the day it registers the certificate of lien, and it does not have priority over a Crown claim other than one by way of mortgage. A lien covers the unpaid amount, interest and all reasonable legal costs of collection.

Older condominium units under the repealed Condominium Act can have different priority rules, so a lawyer should confirm which applies.

Why the notice and process matter

Where the mortgage contains a power of sale, the 35-day notice of sale must go to every person having an interest in the mortgaged property. If the mortgage has no power of sale clause, the statutory power of sale under Part II of the Mortgages Act applies only after three months' default and requires 45 days' notice to persons having an interest in the property. A spouse with a right of possession in the matrimonial home is entitled to the same notice of the lender's claim and its enforcement as the owner-spouse.

If 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. Before the sale, a borrower in default can stop the lender from enforcing the acceleration clause by paying the arrears and the lender's necessary expenses. Once the power of sale closes, that section 22 right no longer applies and the borrower is limited to a claim for damages against the lender. How this applies to a surplus dispute depends on your situation, so it is worth confirming with a lawyer.

If there is a shortfall instead

Sometimes the sale does not cover the debt. An action on a mortgage covenant to repay, such as a lender's claim for the shortfall after a power of sale, 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 covers guarantees too. A lender does not lose the longer period just because the property has been sold.

Whether a lender can recover a shortfall depends on the mortgage covenant and on whether the sale achieved true market value. This is an area where legal advice is especially useful.

What to do next

• Collect the notice of sale, the mortgage, and any statements you received.
• Ask what the property sold for and when the sale closed.
• List every charge, lien or other claim registered against the property.
• Check whether you or your spouse received proper notice.
• Note dates carefully, since limitation periods apply.
• Speak with a lawyer about whether a claim for any surplus or for damages is worth pursuing.

The right steps depend on the sale price, the ranking of the claims, and how the sale was run. A lawyer can review the documents and explain what is realistic.

Frequently asked questions