Power of Sale
When a homeowner is in default with their mortgage payments, a lender can rely upon a power of sale provision in their standard charge document to lease or sell the property on default. If there is no provision in the charge document, the lender may rely on the Mortgages Act which authorizes Power of Sale.
Steps of a Power of Sale
- Notice of Sale
A homeowner, spouse, and encumbrancers after the lender may be served with a Notice of Sale after 15 days of default. The mortgagor is provided a minimum of 37 days of redemption period to pay off the principal and interest amount owing. During the notice period, the lender cannot negotiate or accept any payment, otherwise the Notice becomes void.
- Statement of Claim
Once the notice period expires and payment is not received, the lender may issue a Statement of Claim with the Superior Court of Justice to take possession of the property. However, Statement of Claim may be served in conjunction with the Notice of Sale.
- Statement of Defence
Once the Statement of Claim is issued, the borrower is provided a minimum of 20 days to file a Statement of Defence with the Court. It is important to note that the lender may provide an extension to the borrower to file a Statement of Defence.
- Writ of Possession
If a Statement of Defence has not been made by the borrower the lender can note the defendant in default, then file a motion to get an order for a writ of possession. The writ of possession is then provided to the Sherriff’s office in order to issue an eviction notice.
If the property is listed for sale, the lender has an obligation to the mortgagor to conduct an appraisal of the property and list the property at true market value through a brokerage. However, the property is sold in “As Is” condition.
Based on the Ontario Court of Appeal decision in Logozzo v Toronto-Dominion Bank (1999), the borrower cannot negotiate or pay off the arrears once the lender has entered an unconditional Agreement of Purchase and Sale with a third party. However, it is important to note that if an Agreement of Purchase and Sale contains a redemption clause, the lender may terminate the transaction upon receipt of redemption funds from the borrower.