Siblings' Private Mortgage Survives a Borrower's Default

The situation

Franco, a surgeon, and Antonio, a specialist physician, had spent years putting spare income into investments that felt more concrete than a stock portfolio. Two years earlier, through a mortgage broker, they had been introduced to an opportunity to fund a private second mortgage: a homeowner in Orillia named Nadia needed roughly $300,000 to complete a renovation and consolidate some other debt, and could not get the amount she needed from a bank because most of her income came from self-employment and did not fit a conventional lender's requirements.

Private mortgages work outside the banking system. An individual or group of individuals lends money directly to a borrower, secured by a registered mortgage against the borrower's property, usually at a materially higher interest rate than a bank would charge, to compensate for the higher risk and the absence of the underwriting a bank would normally do. Franco and Antonio registered their mortgage as a second mortgage, meaning it ranked behind the homeowner's existing bank mortgage in priority — if the property were ever sold, the bank would be repaid first, then the siblings, then the homeowner.

For close to two years, Nadia paid the interest-only payments on time every month. Then, over one winter, the payments stopped. Franco called Antonio after the second missed payment, and the two of them came to Treadstone Law to understand their options before deciding what to do next.

The problem

By the time the file reached our team, Nadia was four months in arrears, owing roughly $9,000 in unpaid interest on the $300,000 principal. Under the mortgage agreement, a default of this kind entitled Franco and Antonio to demand the full outstanding balance and to enforce their security — in practical terms, to start a power of sale, the process by which a mortgage lender in Ontario can have the property sold to recover what it is owed, without going through a full court-ordered judicial sale in most cases.

A power of sale is a powerful remedy, but it is not a fast or simple one. It requires strict notice periods to the borrower, careful compliance with the terms of the mortgage and the applicable legislation, and — because Franco and Antonio held a second mortgage — coordination with the bank holding the first mortgage, whose claim would be paid out ahead of theirs from any sale proceeds. It also risked an outcome nobody wanted: a forced sale, often at a lower price than an owner-managed sale would achieve, legal costs added to what was already owed, and a homeowner who lost her house on a timeline she did not choose.

Our team's first task was to find out why Nadia had stopped paying. A conversation through her own lawyer revealed the real story: a slow season in her business, not a permanent collapse. She still had substantial equity in the property, which by then was worth considerably more than when the second mortgage was registered, and she wanted to sell — she simply needed a few months to do it properly rather than in a fire sale.

What we did

1. Sent a formal notice of default and demand. This preserved Franco and Antonio's legal position and their right to enforce the mortgage, while making clear the debt was calculated correctly and start the clock on the strict notice periods a power of sale requires — without yet commencing the sale process itself.
2. Verified the equity cushion before deciding on strategy. Confirming, through a current valuation, that the property was worth well above the combined balance of the first mortgage and the siblings' second mortgage meant time was on the lenders' side. If Nadia's own sale process failed, there would still be enough equity to recover the full debt through enforcement later — a workout was worth trying because the downside was limited.
3. Negotiated a forbearance agreement. A forbearance agreement is a lender's written promise to hold off on enforcing a default for a defined period, in exchange for specific commitments from the borrower. We drafted one giving Nadia four months to list and sell the property, in exchange for resumed monthly interest payments, a fixed amount toward the arrears each month, and her agreement that the full balance would become immediately due if she missed another payment or failed to list the property within a set number of weeks.
4. Built in a hard stop with no further negotiation. The agreement made clear that a second default would move directly to enforcement with no further notice beyond what the law required. This mattered as much for Nadia as for the siblings — everyone knew exactly where they stood, and Nadia's lawyer could advise her honestly about what would happen if the plan slipped.
5. Monitored the listing and stayed in direct contact with Nadia's lawyer. Rather than waiting passively for the four months to run out, our team asked for regular updates on showings and offers, so that if the sale process was stalling, Franco and Antonio would know early enough to reassess rather than discover a problem only when the deadline arrived.
6. Reviewed the payout on closing. Once an accepted offer came in, we confirmed the payout statement showing exactly what would be owed to the bank's first mortgage and to Franco and Antonio's second mortgage as of the closing date, so there was no dispute at the last moment about the amount required to discharge their mortgage.

The outcome

Nadia listed the property within the agreed window and accepted an offer of roughly $1,650,000 about ten weeks later. On closing, the sale proceeds paid out the bank's first mortgage, then Franco and Antonio's second mortgage in full — the original $300,000 principal, the arrears that had built up before the forbearance agreement, and the interest that accrued through to the payout date — with a meaningful amount of equity left over for Nadia after both mortgages and selling costs.

No power of sale proceeding was ever started. Franco and Antonio were repaid everything they were owed, on a timeline only a few months longer than if nothing had gone wrong, and without the legal costs, delay and reduced sale price that a forced sale often brings. Nadia sold her home in the ordinary way, at a price she and her own real estate agent set, rather than losing control of the process to a court-supervised or lender-directed sale.

The file also gave Franco and Antonio a clearer view of what they had signed up for as private lenders. Before the default, the mortgage had felt like a fixed-income investment with a better return than a savings account. Afterward, they understood it as what it actually is: a secured loan that can require active management, legal enforcement machinery, and judgment calls about when to hold firm and when a structured compromise serves the lender's interests better than an immediate fight.

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