Private mortgages are becoming increasingly popular in today’s Canadian mortgage market. Private lenders, who want to ensure that they can collect their loans, often enquire about remedies available to them once a mortgage is in default. One such remedy is Power of Sale proceedings, which can incur significant legal fees even if the borrower’s goal is to ultimately pay back the loan.

15 days after the date that the borrower defaults on the mortgage (usually due to failure to make payment), the lender can issue a Notice of Sale to the borrower and any other party who may have an interest in the subject property. This includes other lenders who have a registered interest in the property. The borrower then has a redemption period of 35 days to pay off the mortgage debt including legal fees and interest amounts that were incurred. During this redemption period, the lender may not take any steps to sell the property or take possession. Once this redemption period expires, the lender has the right to sell the property.

Before or after the redemption period, the lender can issue a Statement of Claim for possession of the property and collection of debts owed. The borrower may respond to the lender by filing a Statement of Defence within 20 days. Otherwise, the lender may obtain a default judgment, allowing the court to provide the lender with a Writ of Possession. A Sheriff can then use this Writ to evict the borrower and allow the lender to take possession of the property.

The legal fees for the processes described above can be highly burdensome for a borrower who is likely already experiencing financial difficulty. It is, therefore, in both the lender's and borrower’s best interest to remedy the default early on in order to avoid Power of Sale proceedings.