By Pathik Baxi and Amrita Mann
- Default of Mortgage: In Ontario, where a Mortgage has been in default for at least 15 days, the Mortgages Act entitles Lenders to sell the Mortgaged Property to third parties, enabling it to recover some or all of the debt, as well as its costs of recovery, pursuant to a Power of Sale.
- Notice Period: To sell a Property by way of Power of Sale, the Lender must issue a Notice of Sale. Pursuant to section 32 of the Mortgages Act, a Notice of Sale must provide the Borrower with at least 35 days’ notice of the Lender’s intention to sell the Property.
- Delaying Enforcement: Borrowers may be able to delay the enforcement of the Notice of Sale to buy more time to redeem the Mortgage or to prevent the Lender from selling the Property. The most common and perhaps simplest way to delay enforcement is to attack the validity of the Notice of Sale. That’s why it’s so important for Lenders to ensure that the Notice of Sale is valid.
- Attacking Validity of Notice of Sale: A Notice of Sale that provides that the Property will be sold on a date that does not comply with the 35 day notice provision will be deemed as invalid. Also, a Notice of Sale that is not signed will be deemed to be invalid. Where a lawyer signs a Notice of Sale on behalf of a client but fails to indicate the capacity in which it is signed, the Notice of Sale will be set aside.
- No Further Proceeding: Pursuant to section 42 of the Mortgages Act, a Lender is prohibited from taking any step or action within the notice period under the Notice of Sale. Any fresh step in the proceeding during the notice period such as issuing and serving a Statement of Claim, taking possession of the Mortgaged Property, or entering into an Agreement of Purchase and Sale of the Mortgaged Property will render the Notice of Sale invalid.
- Re-negotiating New Mortgage Terms: Where after issuing the Notice of Sale, the Borrower starts to make payments and the Lender accepts those payments and allows the Borrower more time to redeem the Mortgage, the Notice of Sale remains valid. It is only when the parties negotiate terms that are different than the Mortgage that the Lender may no longer be able to rely upon the original Notice of Sale and the Borrower will likely be successful in challenging its validity.
- Looking for Fraud and Bad Faith: After the expiry of the notice period under the Notice of Sale, the Lender is free to market and sell the Property. In cases where the notice period under the Notice of Sale has lapsed and where the Lender has entered into an Agreement of Purchase and Sale, the Borrower may still successfully challenge the validity of the Notice of Sale. This will generally require the Borrower to provide evidence of fraud and the absence of good faith on the part of the Lender.
- Commencing Claim for Shortfall: If, after selling the Mortgaged Property under the Power of Sale, the mortgage debt has not been fully satisfied, the Lender is entitled to sue the Borrower and any guarantor to recover the shortfall.
- Conveying Free and Clear Title: When a Lender exercises its rights under a Power of Sale, the Lender is empowered to convey the Mortgaged Property to a purchaser free and clear of the Borrower’s interest and any other person having an interest in the Mortgaged Property subsequent in priority to the Lender.
- Abandoning Power of Sale: A Lender is generally entitled to abandon a Power of Sale proceeding at any time subject only to the provisions of Section 42 of the Mortgages Act.
If you have a matter that you would like to discuss / pursue, contact us:
Pathik Baxi is a Partner, and Amrita Mann is an Associate at
Simmons da Silva LLP.
Disclaimer: This article is only intended for information purposes and is not intended to be construed as legal advice.