Power of Sale in Ontario: A Private Lender's Guide
For a private lender, power of sale is usually the most direct way to recover a defaulted mortgage in Ontario. It is also a tightly regulated process, and mistakes can delay the sale or expose the lender to a damages claim. This guide walks through the main steps and the points where lenders most often go wrong.
Default and the power of sale clause
Most Ontario charges contain their own power of sale, usually through standard charge terms incorporated by reference. The Mortgages Act also provides a statutory power of sale after three months' default, but that statutory power applies only where the mortgage does not contain one (ss. 24 and 30). Start by confirming the registered charge, the standard charge terms, any amendments, and exactly what is in default.
Where the mortgage contains a power of sale, notice cannot be given until the default has continued for at least 15 days (s. 32). If the mortgage requires a longer default period, the Act does not shorten it (s. 37).
The Notice of Sale under Mortgage
The notice must be in the prescribed form (s. 31(1)). It sets out the amounts claimed and the date after which the property may be sold. Errors in the amounts claimed are a common basis for a borrower's challenge.
Who must be served
Under s. 31(1), for Land Titles property, notice must go to every person who appears by the parcel register and the execution index to have an interest in the property. It must also go to:
the Crown or another public authority with a statutory lien, where the lender has written notice of the lien;
any person whose interest the lender has actual notice of in writing before giving notice; and
the responsible Minister, where the last registered owner is a dissolved corporation.
Interests ranking ahead of the lender, and interests subject to which the lender proposes to sell, are excluded. The register for this purpose includes instruments received for registration up to a specified time on the day before notice is given, so searches must be current (s. 31(2)). Non-owner spouses may also have rights under the Family Law Act where the property is a matrimonial home, and prudent lenders serve them.
Notice may be given by personal service, or by registered mail to the person's usual or last known address or the address in the registered instrument, among other methods (s. 33(1)). Registered mail must be mailed in Ontario and is deemed given on the day it is mailed (s. 34).
The waiting period
The sale cannot take place until at least 35 days after notice is given, or a longer period if the mortgage requires one (ss. 32 and 37). After notice is given, the lender generally cannot start further proceedings to enforce the mortgage until the notice period has run, without a court order (s. 42(1)). Until the sale, the borrower can generally put the mortgage back in good standing by curing the default and paying the lender's necessary expenses, rather than the full accelerated balance (s. 22(1)).
Statement of account
The borrower may demand a written statement of the arrears or default and the lender's expenses (s. 22(2)). The lender must answer within 15 days. If it fails to do so without reasonable excuse, or its answer is incomplete or incorrect, its enforcement rights are suspended until it complies (s. 22(3)).
Statements should claim only interest, fees and costs that the mortgage and the law permit. The federal Interest Act restricts charging a higher rate on arrears than on principal not in arrears. Any interested person may also have the lender's costs of exercising the power of sale assessed by an assessment officer (s. 43(4)).
Selling at fair market value
A selling mortgagee must act in good faith and take reasonable care to obtain the best price reasonably obtainable, generally the fair market value at the time of sale. In practice, that means current appraisals, a proper listing with a licensed brokerage, reasonable exposure to the market and a documented response to each offer. A rushed sale, a sale to a related party or a sale well below appraised value invites a claim by the borrower or a subsequent encumbrancer.
On closing, statutory declarations as to default, service and compliance are conclusive evidence of compliance and give the purchaser good title, subject to the Land Titles Act (s. 35). Where notice was given in professed compliance, the purchaser's title generally cannot be attacked for defects in default or notice, but anyone harmed has a remedy against the lender (s. 36). The risk of a defective process falls on the lender, not the buyer.
Accounting for the surplus
The lender must account for the sale proceeds. For the statutory power of sale, s. 27 applies proceeds first to sale expenses, then interest and costs, then principal, then subsequent encumbrancers by priority, with the residue paid to the owner. Mortgages with their own power of sale generally follow a similar order, and a lender who keeps a surplus or pays it to the wrong person is exposed to liability.
Obtaining possession
A power of sale does not by itself put the lender in possession. If an owner remains in the home, the lender generally needs a judgment for possession and a writ of possession enforced by the sheriff. A lender cannot obtain possession of a rental unit from the borrower's tenant except in accordance with the Residential Tenancies Act, 2006 (s. 48(1)).
Common mistakes that create lender liability
Giving notice before 15 days of default, or selling before the notice period has run.
Missing a person entitled to notice, such as a subsequent mortgagee, execution creditor or lien claimant.
Claiming amounts the mortgage does not permit, or failing to answer a statement request in time.
Changing the locks on an occupied home without a court order.
Selling without proper marketing and appraisals, or well below market value.
Failing to account for or pay out a surplus.
If a borrower or another encumbrancer challenges the sale, the dispute becomes real estate litigation, and the lender's file will be examined step by step.
How we can help
We act for private lenders on mortgage enforcement, from the first notice through sale, possession and accounting. If a borrower is in default, contact us early so the process is set up correctly from the start.
General information only, not legal advice. Every matter turns on its own facts.
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