Last September, when the second wave of coronavirus cases was still on the horizon, the CBC ran a shocking story about how the pandemic had impacted mortgage payments.
According to a Canada Mortgage and Housing Corporation report, around 760,000 Canadians had deferred or skipped mortgage payments since the beginning of the pandemic, adding up to $1B per month nationwide.
While it is not surprising that hundreds of thousands of Canadians were unable to make their regular payments during the worst recession since the Great Depression, it raised a question that many homeowners hope they will never have to face: what happens when you aren’t able to make your regular payments?
Though the extenuating circumstances caused by COVID-19 have allowed some mortgage holders to negotiate more flexible payment plans, the story did make large numbers of people more aware of how provincial and federal law deal with people who are unable to make their payments through foreclosure and the power of sale process in Ontario.
In this article, we’ll be exploring how the power of sale process in Ontario works, how it differs from foreclosure, and how a mortgage broker can help you stop power of sale if you’ve received a ‘Notice of Sale.’
Power of Sale vs. Foreclosure
The typical Ontario mortgage requires monthly payments, the amount of which varies depending on the cost of the house, the interest rate, and the agreement between lender and borrower.
If the borrower is not able to make their payment and goes into default, the lender can, after fifteen days, send what is called a ‘Notice of Sale’ — an official letter sent to all parties in the mortgage agreement informing the lender of how much is owed and when final payment must be made.
The key difference between the power of sale process in Ontario and foreclosure is that in the case of the latter, the lender is trying to repossess the property, while in the case of the former, they are demanding that the property be sold in order to pay off the outstanding debt.
While foreclosure typically leaves the lender with more in terms of financial assets, it is also a lengthier process as it has to move through the court system. Power of sale, on the other hand, can be completed within six months.
In addition to default, the power of sale process in Ontario can be initiated for any of the following reasons:
- The property is being used for illegal purposes
- The property has been allowed to deteriorate significantly
- Property taxes have not been paid
- The property is not adequately insured
Every Canadian province has its own rules governing the ways mortgage lenders can pursue accounts in default, which is why it is important to understand the differences between jurisdictions. In Ontario, power of sale and foreclosures are the two legally-recognized tools for doing so.
What to Do if You’ve Received a Notice of Sale
The good news for Ontario homeowners is that there are ways to stop power of sale from moving forward with the help of a professional mortgage broker who can advocate for you, provide legal advice, and help find ways to discharge the debt so the power of sale process is halted.
Once the Notice of Sale has been received, there is a 35-day ‘Redemption Period’ (40 days for married couples) during which the borrower can raise money to put the mortgage back into good standing. If this is not done, the lender can issue a State of Claim to collect the amount owed to them and take possession of the property.
At this point, if the borrower doesn’t file a Statement of Defence, the lender will get a Writ of Possession empowering them to evict the occupants of the property and put it up for sale.
The good news is that even if you don’t have the funds to put the mortgage into good standing, it is possible to use the property itself to raise the necessary money using a second mortgage.
At Burke Financial, we have extensive experience helping people dealing with the power of sale process secure a second mortgage in Canada that will allow them to leverage home equity for the purposes of a debt consolidation loan.
We can also help you refinance your home mortgage loan to pay off the sum owed to your mortgage lender and get you back on track financially without losing your home.
How Home Equity Can Help Stop Power of Sale
At the end of the day, power of sale is nothing more than a way for a lender to recover debt — so the easiest way to stop a power of sale process is by raising the necessary funds to discharge the debt and pay whatever penalties may have accrued.
For most homeowners, the easiest way to do this will be through home equity.
When you put a down payment on a house and get a mortgage loan, you functionally own only a percentage of the property. But as you make your monthly payments, and as the property value rises in line with market forces, the percentage of the property that is yours increases. This is what is known as ‘home equity,’ and it is an asset you can borrow against through a home equity loan.
The difference between getting a home equity loan vs mortgage is that a home equity loan is essentially a second mortgage taken out against the value of the equity you own — both the loan and the mortgage will eventually need to be repaid, but the loan can help you re-establish a financial equilibrium during a period of uncertainty.
One of the things that makes home equity loans a particularly appealing tool for Ontario homeowners is the growing housing market in most parts of the province — your house has likely appreciated in value significantly since you purchased it, and a home equity loan allows you to access that money to get your original mortgage back on track so you can stop the power of sale process in its tracks.
In addition to being a mortgage broker who can help you access the funds you need, we also specialize in advocating your clients and communicating with lenders on your behalf, so you can handle the process without added stress.
If you’ve received a Notice of Sale and are worried about what will happen next, get in touch with Burke Financial today!