When a borrower stops making mortgage payments, it can put a lender in a challenging position. You want to recover what’s owed, but you also need to follow the right legal steps. In Ontario, lenders have the right to use a process called power of sale to recover their investment without having to take ownership of the property. For lenders in Brampton, understanding how this process works and the steps involved can make all the difference in protecting your interests.
What Is a Power of Sale?
A power of sale allows a lender to sell a borrower’s property after a default, usually because of missed mortgage payments. It’s governed by the Mortgages Act (Ontario) and is different from foreclosure, where the lender takes ownership of the property. With a power of sale, the lender sells the property and uses the proceeds to pay off the outstanding mortgage, interest, and legal costs. If there’s money left over, it goes back to the borrower. If the sale doesn’t cover the full amount owed, the borrower may still be responsible for the shortfall.
When Can a Lender Use Power of Sale?
Before starting a power of sale, the borrower must be in default under the mortgage, typically for missed payments or breaching another term of the agreement. The lender must then send a Notice of Sale Under Mortgage, as required under the Mortgages Act.
This notice must be served on the borrower and anyone else with a interest in the property, such as other mortgagees or lienholders. The notice gives the borrower a limited time to pay the arrears before the lender can take further steps. In most cases, the notice period is 35 days.
The Power of Sale Process: Step by Step
1. Notice of Sale
Once the borrower is in default, the lender’s lawyer prepares and serves a Notice of Sale. This formally starts the redemption period, which is the time during which the borrower can pay what’s owed and stop the process.
2. Waiting Period / Redemption Period
During this 35 period, the borrower can “redeem” the mortgage by paying the arrears, interest, and related costs (if the lender is enforcing only arrears) or redeeming the mortgage entirely (paying out the full balance owing). If they do, the power of sale process ends.
3. Legal Action (if required)
If the borrower doesn’t pay within the notice period, the lender’s lawyer may issue a statement of claim to recover any shortfall or obtain a court judgment if necessary. However, many power of sale proceedings can move forward without a full court process.
4. Selling the Property
Once the redemption period expires, the lender can proceed to sell the property, either privately or through a real estate listing. The lender must act in good faith efforts to obtain fair market value for the property, as required under Ontario law.
5. Applying Sale Proceeds
The money from the sale is distributed in a specific order:
- Costs of sale (legal fees, real estate commissions, etc.)
- The outstanding mortgage debt, interest, and enforcement costs
- Any subsequent mortgagees or lienholders
- Any remaining funds to the borrower
6. Discharging the Mortgage
Once all debts and costs have been paid, the mortgage is discharged, and the power of sale process is complete.
Why Legal Guidance Matters
Although the power of sale process is designed to protect lenders, it has strict rules around notice, timing, and fair dealing. A single mistake, such as serving notice incorrectly or failing to meet the required timelines, can delay recovery or lead to disputes.
A mortgage enforcement lawyer ensures that every step complies with Ontario’s Mortgages Act. They can handle notice preparation, communicate with borrowers and other creditors, and manage the sale process to protect your legal and financial position.
Protecting Your Investment
If a borrower has defaulted on their mortgage, taking early and well-informed action is key. Working with an experienced mortgage enforcement lawyer in Brampton can help you navigate the power of sale process efficiently and lawfully.
Contact GS Brar Law to discuss your situation. Our firm advises lenders across Ontario on mortgage enforcement and power of sale matters, helping you recover your investment while staying compliant with every legal requirement.
