Drawing from our collective experiences as real estate lawyers in Ontario, we often address questions from both borrowers and lenders about the power of sale process. This vital legal mechanism allows mortgage lenders to sell a property when a borrower defaults on their mortgage, providing a faster and more economical alternative to foreclosure. For those involved in the real estate market, understanding the power of sale proceedings and the associated rights and obligations is crucial.

Power of sale is a legal right granted to mortgage lenders in Ontario under the Ontario Mortgages Act. This right enables lenders to sell a mortgaged property without resorting to the court system, provided the borrower defaults on their mortgage payments. The primary aim of this process is to recover the outstanding debt owed by the borrower efficiently and effectively.

When a borrower defaults on their mortgage payments, the lender initiates power of sale proceedings to recover the debt through the sale of the property. The process begins with the lender sending a default notice, giving the borrower a specified period to rectify the default, usually 15 days for commercial properties and 35 days for residential properties. If the borrower fails to cure the default, the lender issues a Notice of Sale Under Mortgage, informing the borrower and other interested parties of the default, the amount owed, and the intention to sell the property if the default is not cured within an additional 35 days.

Following the issuance of the Notice of Sale, the borrower enters a redemption period, usually lasting 35 days, during which they can pay off the outstanding debt and associated costs to stop the proceedings. If the borrower does not redeem the mortgage, the lender proceeds with the sale of the property, ensuring the sale is conducted in a commercially reasonable manner, often through a real estate agent or auction. The sale proceeds are first used to cover the lender's costs and the outstanding mortgage debt, with any remaining funds distributed to other lienholders and any surplus returned to the borrower.

Even though power of sale proceedings allows lenders to recover their debts efficiently, borrowers are protected by several rights. One key protection is the Equity of Redemption, which allows borrowers to redeem their property by paying off the outstanding debt and costs at any time before the property is sold. This gives borrowers a final opportunity to save their property from being sold.

Additionally, lenders must conduct the sale in a reasonable manner, ensuring they obtain the best possible price for the property. This protects borrowers from unfair or rushed sales that might undervalue their property. After the sale, any surplus funds remaining once the mortgage debt and associated costs are paid must be returned to the borrower, ensuring they receive any excess value from their property. These protections help balance the process, giving borrowers fair treatment and opportunities to retain or benefit from their property even during foreclosure proceedings.

Power of sale is an essential mechanism in Ontario's real estate market, providing lenders with a practical means to recover debts while offering borrowers opportunities to remedy defaults and protections during the sale process. Both parties must understand their rights and obligations to navigate this process effectively.

If you are in a situation concerning power of sale, whether as a lender or a borrower, connect with our lawyers for professional advice. Send us an email at info@kormans.ca or call (905) 270-6660 and our experienced legal team will help you understand and protect your rights during these proceedings.