Protecting a Co-Owner's Share When a Power of Sale Hits

The situation

Sanjay and Oksana, a specialist physician and a surgeon working at the regional hospital, had spent several years building a modest side investment alongside their medical careers. Along with a colleague, Andriy, they had bought a small multi-unit rental property as an investment, holding title together as tenants in common — each owner holding a distinct, separately registered percentage share of the property rather than one undivided interest shared automatically among all owners. Sanjay and Oksana each held a third, and Andriy held the remaining third and managed the property day to day: collecting rent, arranging repairs, and forwarding the shared mortgage payment from a joint account each month.

That arrangement worked well enough for years. Sanjay and Oksana were busy with clinical schedules and had little reason to check in on a property they trusted a colleague to run. At the same time, the couple was in the process of upsizing their own family home in Petawawa — a purchase agreement on a property priced around $1.9 million, with a mortgage commitment and a moving date already set, and most of their attention on that transaction rather than the rental property in the background.

What the demand letter revealed

The first sign of trouble was a letter from a law firm acting for the mortgage lender on the rental property, addressed to all three registered owners. It stated that the mortgage was in arrears by roughly $46,000 — several months of missed payments — and that if the default was not cured within the period set out in the mortgage documents, the lender intended to proceed with power of sale: a remedy available to an Ontario mortgage lender when a borrower defaults, allowing the lender to sell the property itself to recover what it is owed, without going through a court foreclosure process.

Sanjay and Oksana had no idea any payments had been missed. When they reached Andriy, he explained that he had been struggling personally — a judgment had been entered against him in an unrelated matter, and a writ of execution had since been registered against his interests, a step a creditor can take once it has a court judgment, allowing the judgment to attach to real property the debtor owns so it can be collected from any future sale proceeds. Andriy had quietly stopped forwarding the rental property's mortgage payments while trying to keep his own finances afloat, hoping to catch up before anyone noticed.

By the time Sanjay and Oksana learned what was happening, curing the default in full would have meant coming up with tens of thousands of dollars on short notice — money that was already earmarked for the closing costs and moving expenses on their own new home. Andriy, dealing with his own insolvency pressure, was in no position to contribute his share of the shortfall either. The couple came to Treadstone Law needing to understand what was actually about to happen to the property, and what it meant for the money they had put into it.

What we did

1. Confirmed the ownership structure on title. The property's title showed three separate, registered shares held as tenants in common, not a joint tenancy. That distinction mattered enormously: each co-owner's interest is legally distinct from the others', so a debt or judgment against one owner does not automatically reach the others' shares. This meant Andriy's personal creditor could reach his third of the property, but not Sanjay and Oksana's two-thirds.
2. Assessed whether curing the default made sense. We reviewed the arrears figure, the penalty interest accruing on it, and the couple's realistic ability to fund a cure without disrupting their own home purchase. Given Andriy's inability to contribute and the couple's own closing obligations, reinstating the mortgage was not a workable path — the more urgent task was making sure their equity was protected once the power of sale went ahead, not trying to stop a sale that was already largely unavoidable.
3. Put the lender's lawyer on formal notice of the ownership shares. We wrote to the lawyer conducting the sale on the lender's behalf, setting out Sanjay and Oksana's registered two-thirds interest and asserting that any surplus remaining after the mortgage debt, accrued interest, and sale costs were paid must be apportioned according to each owner's title share — not released as a single lump sum that could be swept up by Andriy's judgment creditor before the couple ever saw their portion.
4. Tracked the priority of claims against the surplus. Ontario's rules for power of sale require the lender to pay itself first, then satisfy other encumbrances registered against the property in order of priority, before any remaining surplus goes to the owners. Andriy's writ of execution was registered against his interest specifically, which meant it stood ahead of him personally in the queue for his share — but had no claim at all on Sanjay and Oksana's separate shares.
5. Kept the two transactions cleanly separated. Because the couple's own home purchase was closing around the same time, we made sure nothing about the rental property's default or the lender's sale process touched the title search, financing, or closing documents for their new home. The two matters shared owners but nothing else, and it stayed that way.

The outcome

The lender sold the rental property several months later. After the outstanding mortgage balance, the accrued penalty interest from the months of missed payments, and the costs of the sale itself were deducted, the total surplus came to roughly $210,000 — meaningfully less than the couple had expected the property to net them in a normal, voluntary sale. That gap was the real cost of the default: months of interest charges and forced-sale costs that a planned sale on their own timeline would not have carried.

Of that surplus, Sanjay and Oksana's combined two-thirds share came to roughly $140,000, paid out to them directly as the registered owners of that portion of the title. Andriy's one-third share, worth roughly $70,000, was intercepted at source and applied toward his registered judgment debt rather than paid to him — a result of the writ of execution that had been registered against his interest, and entirely separate from what Sanjay and Oksana received.

The couple's own home purchase closed on schedule, unaffected by the rental property's collapse. What they were left with was a genuine loss on the investment — tens of thousands of dollars less than the property would likely have brought on the open market under normal circumstances — but a contained one. Their equity was protected from being absorbed into Andriy's personal debt, they were never personally liable for the arrears he had failed to pay, and the disruption never reached the home they were in the middle of buying.

What you can learn from this