Chapter 21: Mortgage Remedies

1.      What constitutes default by the Borrower?

Failure to perform his or her mortgage obligations, including any of the covenants contained in the Standard Charge Terms.

2.      What process is the most common remedy used by Lenders in Ontario when a Borrower defaults on his or her mortgage obligations?

The Power of Sale process.

3.      What Act outlines the process that must be followed under a Power of Sale?

The Mortgages Act, R.S.O. 1990, c.M.40. 

4.      How long after a Borrower defaults on his or her mortgage payment can a Lender begin the Power of Sale process?

15 days.

5.      Describe, in your own words, the Power of Sale process.

·         The Borrower defaults

·         The Lender serves notice

·         The Borrower has a redemption period

·         The Lender takes possession of the property

·         The Lender sells the property

6.      How does a Foreclosure differ from a Power of Sale?

In a Power of Sale the Borrower receives any profit from the sale and is liable for any shortfall.  In a Foreclosure the Borrower’s rights and obligations to the property are terminated.

7.      What provinces currently use a Power of Sale process?

Power of Sale is used in Newfoundland and Labrador, New Brunswick, Prince Edward Island and Ontario.

8.      What documents must a Lender provide a Realtor when selling a property under Power of Sale?

The Lender must provide the Realtor with a Certificate of Power of Sale, proving that the Lender has the legal right to sell the property.  A schedule must also be attached to the Agreement of Purchase and Sale, entitled the Seller Selling Under Power of Sale.

9.      List the order in which proceeds of a sale under a Power of Sale are distributed.

·         In payment of all expenses involved in the sale of the property, including the Realtor’s fee, legal fees, etc.

·         In payment of all interest and costs associated with the mortgage involved in the Power of Sale

·         In payment of the principal balance outstanding on the mortgage involved in the Power of Sale

·         In payment to any additional encumbrancers such as mortgage holders and others who had an interest in the property

·         Payment of rental deposits made by any tenants, if applicable

·         Any monies remaining must be paid to the mortgagor

10.  Other than a Power of Sale or Foreclosure, what other steps might a Lender first use to recover monies owing by a defaulting Borrower?

While a Power of Sale is the most common remedy in Ontario and can be commenced after 15 days of default, most Lenders will not seek this remedy immediately.  In most cases the process will begin with a letter sent from the Lender’s collection department advising the Borrower of the default and requesting that the missed payment be sent to the Lender immediately.  The Lender may also require the Borrower to pay a non-sufficient funds (NSF) fee and may also require the Borrower to pay an administrative fee.

If this letter does not obtain the desired results, the Lender may then use a Demand Letter, which is a letter sent from the Lender’s Lawyer demanding the payment of the outstanding amount.  If neither of these remedies is successful, the Lender will then proceed with the Power of Sale process.