Unforeseen circumstances can sometimes make it difficult for a homeowner to keep up with their mortgage. In the event that a homeowner defaults on their mortgage, the lender may be entitled to sell the property.
A power of sale can feel overwhelming for homeowners. However, a real estate lawyer can help you navigate the situation
What Is a Power of Sale?
A power of sale is a process where the lender (usually the bank or a mortgage company) can sell a property if the borrower (homeowner) defaults on the mortgage.
There are a few ways that a homeowner can default on their mortgage obligations, but the most common is through missed mortgage payments.
What Happens in a Power of Sale?
In a power of sale, the lender reserves the right to sell the property to recover the money that they are owed.
The process usually follows this timeline:
- The default occurs
- The lender sends a notice of sale: This tells the homeowner how much they owe, why they are in default, and how long they have to resolve the problem
- Redemption period: A redemption period, often approximately 35 days in Ontario, is set out in the notice of sale. In this time, the homeowner may do what they can to bring the mortgage back into good standing. This can be done by paying arrears, interest, and legal costs
If the homeowner is able to resolve the default, the lender will retract the power of sale. If not, they may proceed with the sale of the property.
The sale process is as follows:
- Sale of the property
- Distribution of sale proceeds: Proceeds from the sale are used to repay mortgage debt, legal fees, and other registered claims against the property
If there is money left over, the homeowner may receive it. However, if the property does not fully cover the costs, the lender may pursue the homeowner for the remaining shortfall.
What Are My Options?
If you are facing a power of sale, the best course of action would be to contact a real estate lawyer. They can advise you of your options based on your specific situation.
In general, real estate lawyers assist homeowners facing power of sale proceedings by providing legal advice and helping them explore options outside of the lender’s sale of their home.
This can include:
- Negotiating with lenders
- Delaying proceedings
- Arranging refinancing
- Encouraging homeowners to sell the property themselves in order to repay debts while preserving any remaining equity in the property
Ultimately, a real estate lawyer would review your case and help you choose the best option based on your circumstances.
When Should I Reach Out?
Once you become aware that there is a notice of sale on your property, you should seek legal advice as soon as possible. In Ontario, you have 35 days from the date of notice to return your mortgage to good standing. In that time, you should contact a real estate lawyer to help you better understand your rights and possible next steps.