Stopping a Power of Sale by Paying the Arrears in Ontario

Getting a demand letter or a Notice of Sale under Mortgage is frightening, especially when the lender says the whole mortgage is now due. Many people assume the only choices are to find the full balance or lose the home. In Ontario, that is often not the whole picture.

This guide explains what you can do to bring the mortgage back into good standing: what you have a right to pay, how to ask the lender for exact figures, how much time the process generally gives you, and the point at which the right runs out. It is general information, not advice on your own file.

Your right to pay only the arrears

Many mortgages say that if you miss payments, the entire balance becomes due. This is called an acceleration clause. Despite any agreement to the contrary, a borrower in default can stop the lender from enforcing that clause by paying the amount due under the mortgage, plus the lender's necessary expenses (Mortgages Act, s. 22(1)).

The amount due means the arrears, not money that is only due later. So you are generally not required to pay off the full balance to stop the process. The expenses must be the lender's necessary ones, which is why asking for an itemized figure matters.

• Arrears: the payments that have actually come due and were missed.
• Necessary expenses: costs the lender reasonably had to incur in enforcing.
• Not included: amounts that are only due in the future.

Asking for a statement of arrears and expenses

You do not have to guess the number. You can give the lender written notice requiring a written statement of the arrears and expenses, and the lender must answer within 15 days.

If the lender fails to answer without reasonable excuse, or gives an incomplete or incorrect answer, its enforcement rights are suspended until it complies. That can be valuable leverage, but whether a particular answer is incomplete or incorrect is a question of detail that a lawyer can help you assess.

• Put the request in writing and keep a copy.
• Keep proof of how and when you sent it.
• Note the date and count 15 days forward.
• Compare the lender's answer against your own payment records.
• Ask a lawyer to review anything that looks incomplete or wrong.

The timeline that gives you room to act

Where a mortgage contains a power of sale, the lender cannot give notice of exercising the power of sale until the default has continued for at least 15 days. It also cannot sell until at least 35 days after the notice is given. The notice must go to every person with an interest in the property and must be in Form 1, Notice of Sale under Mortgage.

Once a demand or notice of sale has been given, the lender cannot start any further proceeding or action to enforce the mortgage until the time stated in the notice has passed, unless a Superior Court judge permits it (Mortgages Act, s. 42(1)).

A different rule applies where a mortgage has no power of sale clause. The statutory power of sale then applies only after three months' default and requires 45 days' notice to persons with an interest in the property.

A notice sent in the manner the statute prescribes is not defective just because the recipient never actually received it. That is why you should watch your mail and any address the lender has for you.

What the lender can charge on arrears

When you review the statement of arrears, check what has been added. No fine, penalty or rate of interest may be charged on mortgage arrears that increases the charge on the arrears beyond the rate payable on principal not in arrears (Interest Act, s. 8(1)). Interest on arrears at a rate no higher than the mortgage rate is allowed.

Whether a specific fee in your statement is a legitimate expense or an improper penalty depends on the mortgage and the facts. Ask the lender what each line is for, and raise anything unclear with a lawyer.

When the right ends, and spouses who do not own

The right to pay and stop enforcement does not last forever. Once the power of sale closes, s. 22 no longer applies, and the borrower is limited to a claim for damages against the lender. Where a notice was given in professed compliance with the Mortgages Act, the buyer's title cannot be attacked because of a defect in the sale process, and anyone harmed has a remedy against the lender who sold. The exception is a buyer who had actual notice of the defects.

A spouse who has no ownership interest in the matrimonial home but has a right of possession has the same right of redemption or relief against forfeiture as the owner-spouse. That spouse is also entitled to the same notice of the lender's claim and its enforcement (Family Law Act, s. 22(1)).

The s. 22 right to pay applies until the sale closes, so it is still worth acting while a sale is underway, as long as it has not yet closed. 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, which may matter if you later consider a damages claim.

What to do next

• Gather the mortgage, any demand letter, and any Notice of Sale under Mortgage.
• Mark the date on the notice and count the minimum 35 days from it.
• Send a written request for a statement of arrears and expenses, and keep proof.
• Check the lender's reply within 15 days and compare it to your records.
• Pay the arrears and necessary expenses before any sale closes.
• If you are a spouse with a right of possession of the matrimonial home but no ownership interest, you are entitled to the same notice of the lender's claim and its enforcement as the owner-spouse.
• Speak to a lawyer promptly, because the window to act is limited.

Frequently asked questions