Buying a Cobourg Property the Lender Would Not Sell Directly

The situation

Taras called our office the same afternoon he and Oksana had their offer accepted on a property in Cobourg, before either of them had signed anything or wired a deposit. He is a partner at an engineering firm, Oksana owns a construction company, and between the two of them they had bought and sold property before, which was exactly why the transaction in front of them felt unusual enough to call ahead about rather than simply proceed the way they normally would. The property was being sold not by its owner but by a lender, through a court process, following a default on the mortgage the owner had taken out several years earlier.

Most defaulted mortgages in Ontario that end up in a forced sale go through a private process called power of sale, where the lender, acting under authority already built into the mortgage document, lists and sells the property somewhat like an ordinary transaction, without needing a judge's continuing involvement at every step, provided the lender has served the required notices and waited out the statutory redemption period first. A judicial sale is different. It runs through the court, with a judge approving the listing terms, supervising the sale process, and ultimately approving the transaction before it can close, on an application the lender commences rather than a notice it simply serves. Lenders generally prefer power of sale because it is faster and less expensive to administer, and because it does not require them to prove their case to a judge before a buyer's money changes hands. When a lender chooses judicial sale instead, on a file to which they normally reach for the private route without a second thought, that choice usually signals a title problem serious enough that the lender wants a court order behind the sale rather than relying on its own contractual authority alone.

Taras and Oksana had the money in place. A gift from Oksana's parents, sized well within the range typical for a purchase like this one and confirmed by a signed gift letter, covered a meaningful share of the down payment, with the balance coming from their own savings and a mortgage pre-approval already secured. What they wanted from us, before they committed a deposit, was a straight answer to one question: what exactly was tangled about this title, and was it something a buyer could safely close around, or something they should walk away from no matter how good the price looked on paper. Both of them had run businesses long enough to know that the properties worth the most scrutiny are often the ones priced to move quickly, and a judicial sale, by its nature, tends to move on a court-set timetable rather than a negotiable one.

The risk we had to size

The title history showed the source of the lender's caution clearly enough once we pulled it. The property had passed through an estate roughly a decade earlier, and the estate trustee at the time had transferred it to the defaulting owner along with a sibling, Ildiko, as joint tenants, without a formal severance document ever being registered to clarify how the two owners intended to hold their interests going forward. Ildiko had since become estranged from the defaulting owner and, as far as the file showed, had never been properly notified that a mortgage had been placed against the property or that a default and enforcement process was now underway. Because Ildiko had never signed the mortgage herself, the document could only ever have encumbered her sibling's share of the property, not hers, which is precisely the kind of gap that makes a lender nervous enough to want a court's blessing rather than relying on its own paperwork alone.

Under a power of sale, a lender's authority to sell comes from the mortgage document itself, and questions about whether every owner with an interest in the property was properly dealt with during the mortgage's creation or enforcement can surface later as a challenge to the sale from someone who says their interest was never accounted for. A judicial sale, because it runs through the court and results in a court order approving the transaction, gives a buyer a more defensible title even where an interest like Ildiko's has not been fully resolved beforehand, precisely because a judge has reviewed the process and signed off on it rather than the lender simply relying on its own paperwork.

That protection was real, but it was not complete. The court's approval addressed the mortgage enforcement process itself. It did not, on its own, erase the underlying question of whether Ildiko still held an undivided interest in the property that had never been properly bought out, released, or accounted for in the sale proceeds. If that interest existed and was not addressed, Taras and Oksana could end up owning a property with a court-approved sale behind them and an unresolved co-ownership claim in front of them, the kind of dispute that can take years of litigation to sort out even when the buyer's own title is otherwise sound.

Sizing the risk meant answering a specific question rather than a general one: was Ildiko's interest still live, and if so, what would it take to resolve it before Taras and Oksana's money changed hands rather than after. It also meant being honest with Taras and Oksana that a low listing price on a judicial sale is not automatically a bargain; it can just as easily reflect the market pricing in exactly the kind of title risk a buyer would be taking on if the underlying ownership question were left unresolved.

What we did

1. Reviewed the full title history and the court file behind the judicial sale before advising Taras and Oksana to put down a deposit. This let us identify the joint tenancy and Ildiko's unresolved interest as the specific reason the lender had chosen the court process, rather than guessing at a general explanation for an unusual sale structure, and it gave us a concrete question to put to the lender's lawyer instead of a vague request to explain the file.
2. Contacted the lender's lawyer to ask directly how Ildiko's interest was being addressed in the sale. Rather than assume the court process alone would clear the issue, we wanted to know whether Ildiko had been served, whether she had responded, and whether any portion of the sale proceeds was being held back to account for her share, since silence on any of those points would have meant walking away rather than advising a deposit.
3. Learned that Ildiko had recently been located and had, in fact, no interest in blocking the sale. The practical situation on the ground had moved past what the file showed on paper: Ildiko wanted out of the joint ownership entirely and was willing to sign a release, but no one had yet turned that willingness into a signed, registerable document, and nobody on the lender's side had treated finding her as urgent.
4. Identified that the real fix was not a legal argument but a straightforward release, and arranged for one to be obtained. We worked with the lender's lawyer to have Ildiko execute a formal release of her interest in the property, with independent legal advice arranged for Ildiko so the release could not later be challenged as improperly obtained or signed without her understanding what she was giving up.
5. Made the registration of that release, before closing, a firm condition of Taras and Oksana proceeding with the purchase. Rather than rely on a court order alone to carry the risk, we insisted the underlying co-ownership question be resolved on title directly, which is what actually protected our clients rather than the court process on its own, and we put that condition in writing so it could not be quietly dropped under closing pressure.
6. Reviewed the judicial sale order itself to confirm it authorized closing only once the release was registered. This aligned the court's own approval with the practical fix, so there was no gap between what the judge had signed off on and what the title would actually show at closing, and it meant nobody could argue later that the order permitted an earlier closing than the release allowed.
7. Held the deposit in trust with a clear release condition tied to registration of Ildiko's release. This protected Taras and Oksana's money throughout the process, ensuring the deposit could not be released to the lender until the title issue that had prompted the judicial sale in the first place was actually resolved, rather than merely scheduled to be resolved at some later date.

The outcome

Ildiko's release was signed, given independent legal advice, and registered against title roughly six weeks after Taras and Oksana's offer was accepted, ahead of the closing date the judicial sale order had set. By the time the transaction closed, the joint tenancy that had prompted the lender to choose a judicial sale in the first place no longer existed as an open question. The court order approving the sale and a clean, resolved title worked together rather than one substituting for the other.

Taras and Oksana closed on schedule, with the gift from Oksana's parents and their own savings applied exactly as planned, and with a title free of the co-ownership issue that had made the file unusual from the start. Nothing about the purchase price or the structure of the deal changed from what had originally been agreed, which is not always the case when a title problem surfaces mid-transaction and one side ends up asking for a price reduction or a delayed closing to absorb the risk instead.

What made the file resolve cleanly was that the actual fix was not a legal one. Ildiko had already been willing to walk away from an interest that had, in practical terms, meant little to her for years. The legal work was in confirming that willingness existed, translating it into a document that would hold up, and making sure the timing of that document lined up with the court process and the closing date rather than trailing behind it. Had Ildiko been unreachable, uncooperative, or genuinely intent on asserting a claim to the property, the same file could have taken a very different and much longer path, likely one involving a partition application or a negotiated buyout of her interest at a price set through litigation rather than agreement, either of which could have added months to the timeline and put the deposit at real risk in the meantime.

What you can learn from this