Can a Second Mortgage Lender Force a Sale in Ontario?

You may be paying your first mortgage on time but have fallen behind on a second mortgage or home equity loan. It is fair to wonder whether the second lender can really start a sale of your home.

This article explains the general rules in Ontario. The details depend on the wording of your mortgage documents, so treat this as a guide to the questions to ask.

How a second mortgage works

A second mortgage is a second loan secured on your home. You must keep paying the first mortgage too, and second-mortgage interest rates are usually higher because they are riskier for lenders. When borrowing against home equity you can usually borrow up to 80% of your home's value, minus what you still owe; the home is security, and if you cannot repay you may lose it through foreclosure.

Private lenders often provide second mortgages. Private mortgages are generally a short-term option, often for one or two years, they are often interest-only, and fees are often higher than for a traditional mortgage.

Can the second lender start power of sale?

The Mortgages Act timing rules apply where a mortgage contains a power of sale: the lender cannot give notice until the default has continued for at least 15 days, and cannot sell until at least 35 days after the notice is given. If your second mortgage has that clause and you are in default on it, the second lender may be able to use it. Being current on the first mortgage does not by itself answer the question, so check the second mortgage document and ask a lawyer to confirm.

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.

• The notice of sale must be in Form 1 under O. Reg. 814/21.
• It must go to every person having an interest in the property, which would include other lenders.
• After notice is given, the lender cannot start further enforcement proceedings until the time in the notice has passed unless a Superior Court judge permits it.

Ranking and what happens to the first mortgage

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.

In practice this affects who is paid first from sale proceeds. Whether a default on the second mortgage creates any problem under your first mortgage depends on the first mortgage contract, so read both.

If you own a condo, a registered common-expense lien has priority over every registered and unregistered encumbrance on the unit, including an earlier mortgage, but it does not have priority over a Crown claim other than a claim by way of mortgage. That priority over a mortgage is lost if the lien is not registered within three months or if written notice is not given to every registered encumbrancer on or before the day the certificate is registered.

Your rights as a borrower

A borrower in default can stop the lender from enforcing the acceleration clause by paying the amount due under the mortgage (the arrears, not money that is only due later) and the lender's necessary expenses. You can also require a written statement of arrears and expenses, which the lender must give within 15 days.

A lender selling under power of sale must take reasonable precautions to obtain the true market value of the property. Interest on arrears cannot be charged at a rate higher than the rate payable on principal not in arrears.

A spouse with no ownership interest in the matrimonial home but with a right of possession has the same right of redemption or relief against forfeiture as the owner-spouse and is entitled to the same notice.

What to do next

• Read the second mortgage for a power of sale clause and the default terms.
• Request a written statement of arrears and expenses.
• Keep paying the first mortgage so you do not create a second default.
• Contact the second lender early about catching up or a repayment plan.
• Get legal advice before signing anything, especially with private lenders.

Frequently asked questions