Losing Your Property to Power of Sale in Ontario: What Happens Next

Falling behind on a mortgage is frightening, and a letter from the lender's lawyer can make it feel as though the sale is already decided. Power of sale is a process in which the lender sells the property itself, and that process has rules the lender must follow.

This article explains in plain terms how power of sale generally works, who must be notified, what the sale does and does not clear away, and what you can do while there is still time. It is general information. Your mortgage terms and the dates on your notice decide your real timeline.

What power of sale means

Most mortgages contain a clause that lets the lender sell the property if you default. Default usually means missed payments, but it can also include other breaches, such as unpaid property taxes or insurance, depending on what your mortgage says. Power of sale is the lender's right to sell and use the proceeds to pay what is owed.

Under Part III of the Mortgages Act, the lender must give a notice of sale. That notice goes to those entitled to receive it, and the lender's solicitor later certifies that Part III was followed. The specific number of days that apply at each stage is something to confirm on your own notice and with a lawyer, because the dates you need are the ones in your documents.

Who must be told, and why it matters

The notice is not only for the borrower. It must go to everyone entitled to it, and the solicitor handling the transfer must confirm that notice was given to all entitled persons and that Part III was complied with. If a spouse was not served, a Family Law Act spousal status statement is needed on the power of sale transfer.

For you, this means a defect in who was told can become a real issue. If you think notice was missed for you, a spouse or another person with an interest, raise it with a lawyer promptly rather than waiting for the sale to close.

What a sale does not wipe out

Buyers and owners often assume a power of sale clears every claim against the property. That is not the case. A power of sale transfer does not automatically delete construction liens, condominium liens, land tax arrears or certificates of pending litigation.

This matters to you because unpaid amounts of this kind can reduce what is left for you after the sale, and they can affect how easily the lender finds a buyer.

How the transfer gets registered

When the property is sold, the Land Registrar accepts one of two kinds of evidence for the transfer: a set of declarations attached to the transfer, or solicitor-signed statements in the transfer. A combination of the two is not accepted. Registration of the transfer requires a lawyer, since only a lawyer can sign for completeness an electronic registration document that requires compliance-with-law statements.

You do not need to understand the registration mechanics, but it helps to know that a lawyer on the lender's side is putting their professional certification behind the notice steps. If the steps were not followed, that is where a problem would show up.

Your options while there is still time

• Contact the lender early and ask what is needed to bring the mortgage up to date, in writing where possible.
• Ask whether a payment arrangement is possible, and get any agreement confirmed in writing before relying on it.
• Consider selling the property yourself, which can let you control price and timing and may leave you with more than a forced sale.
• Consider refinancing or bringing in a new lender, though your arrears and credit may limit this.
• Have a lawyer review the notice, the mortgage and the dates to see whether the lender followed the Act.

If you sell, remember the tax side. CRA says all sales of real property, including a principal residence, must be reported, even where there is no gain or the gain is fully exempt.

What to do next

• Keep every letter, notice and envelope, and note the date each arrived.
• Gather your mortgage, any renewal or amending documents, and recent statements.
• Write down who has an interest in the property, such as a spouse, a co-owner or a second lender.
• List other debts tied to the property, such as property taxes, condominium fees or liens.
• Speak to a lawyer promptly so the dates on your notice can be checked against the Mortgages Act.

Frequently asked questions