In the spring/summer of 2017, a massive amount of media coverage was devoted to the Ontario real estate market and the drastic changes in property values, supply, and demand. While real estate purchases and sales have cooled significantly from a year ago, there is still plenty of housing talk heading into the warm months of 2018 stemming from new mortgage rules and rates. Even though buying and selling may be down, fluctuating rates have caused people to look at their mortgage and lending options, pushing the volume of mortgage, refinance, borrowing, and lending transactions higher through the first part of the year. But while there appears to be an increasing number of available lending sources entering into the market, we have also seen an increase in the number of borrowing agreements that have been forced into Power of Sale situations. So, what is Power of Sale, and how can one avoid it?
The term “Power of Sale” is a clause that often gets written in to a mortgage agreement that grants the lender the right to sell the property in order to collect on the debt in the event that the borrower breaches or defaults on the agreement. Examples of mortgage breach/default by the borrower could include a failure to pay property insurance, property taxes, or pay back the mortgage on time.
Should a breach/default occur, there are a series of steps that the lender must take during the Power of Sale process, but opportunities for the borrower to bring the mortgage back into good standing also exist.
1. The lender gives written notification outlining the terms of the defaulted mortgage
2. If the borrower does not act, the lender can deliver a Notice of Sale Under Mortgage
3. If the borrower does not act, the lender is able to issue a Statement of Claim for the collection of the debt owed and for possession of the property
4. If the Statement of Defense is not filed, the lender can move forward toward evicting the borrower/occupants and sell the property
How can this be avoided?
It sounds silly, but the number one tactic for avoiding Power of Sale is to fully understand your mortgage agreement. Many borrowers simply focus on the final net amount that they will receive without paying close enough attention to their mortgage terms and stipulations.
Next, never be afraid to ask for a second opinion. Whether through a financial institution (such as a bank) or using a mortgage broker, professionals in both situations should have the client’s best interests in mind. However, some specialists may have access to different lending sources than others.
Finally, involve a lawyer as early in the process as possible. This will help you fully understand the mortgage agreement terms as well as ensure that all administrative tasks are correctly executed, including reviewing legal documents, confirming property taxes are up to date, guarding against claims on the property, confirming valid title, etc.