A Comprehensive Guide to Mortgage Default Remedies in Canada

A Comprehensive Guide to Mortgage Default Remedies in Canada

A Comprehensive Guide to Mortgage Default Remedies in Canada

Introduction

When a borrower defaults on their mortgage in Canada, lenders have several options to recover their investment. The primary methods used are power of sale, foreclosure, and vesting orders. The prevalence of these methods varies depending on the province and the specific circumstances of each case.

Power of Sale

Power of sale is a widely used method in Ontario for lenders to recover their investment when a borrower defaults on their mortgage. It allows the lender to notify the borrower without the need for a court order. A lender needs only to wait 15 days after a missed payment to begin a power of sale process, making it a quicker and more cost-effective solution.

Process:

a. The lender issues a notice of sale to the borrower, outlining the default and the lender's intention to sell the property. In Ontario, for example, the lender must issue a Notice of Sale to the borrower after the default occurs. The borrower then has a minimum of 45 days from the date the Notice of Sale was sent to remedy the default before the lender can proceed with the sale. This 45-day period allows the borrower time to pay the outstanding mortgage debt, refinance the mortgage, or negotiate alternative arrangements with the lender to stop the power of sale process. It is important to note that the specific timeline and requirements for the notice provisions may vary depending on the province and the terms of the mortgage agreement. Borrowers should consult their mortgage documents and seek legal advice to understand their rights and obligations under the power of sale process.

b. If the borrower fails to remedy the default, the lender will issue the statement of claim via court, and a Writ of Possession giving the mortgage lender the right to evict occupants (with the assistance of the Sherriff) and sell the home.

c. Proceeds with the sale, either by listing the property with a real estate agent or through a public auction. The homeowner still has a chance to redeem the property until the point when the property is sold to a new buyer. Once the property has been sold and transaction is completed, the homeowner generally loses the right to redeem the property.

d. The property is sold to the highest bidder, and the proceeds are used to pay off the mortgage debt, with any surplus being returned to the borrower.

Foreclosure:

Foreclosure is a judicial process more common in British Columbia and Alberta, wherein the lender seeks a court order to transfer the property's title from the borrower to the lender, effectively making the lender the owner of the property. In general, the foreclosure process can take several months or even over a year from the time the petition is filed until the court grants the final order. This timeline includes the period for the borrower's redemption, which typically lasts for six months, during which the borrower can remedy the default by paying the outstanding mortgage debt or refinancing the mortgage.

Process:

a. The lender files a petition in court, seeking a foreclosure order.

b. The court issues an order nisi, setting a redemption period for the borrower.

c. If the borrower fails to remedy the default within the redemption period, the court grants an order absolute, transferring the title to the lender.

d. The lender can then sell the property to recover their investment.

Vesting Order:

A vesting order is a court order that transfers the title of a property directly from the borrower to the third-party (such as an accounting company or consulting company). Vesting orders are often used when the lender is unable to sell the property under the power of sale or when the borrower contests the sale.

In some instances, obtaining a vesting order might take several weeks or months, depending on how quickly the court can review the application and make a decision. Factors such as the presence of multiple liens or encumbrances on the property, disputes over the property's title, or other legal complications may cause delays in the process.

Process:

a. The third party files an application in court seeking a vesting order.

b. The court reviews the application and decides whether to grant the order.

c. If the order is granted, the title of the property is transferred to the lender or third-party purchaser, and the proceeds from the sale are used to pay off the mortgage debt.

Borrower can appeal the court's decision after the approval of a vesting order but before the execution of the order. However, the success of the appeal depends on the specific circumstances of the case and the grounds for the appeal. If the Borrower believes there were legal errors or procedural issues during the vesting order process, they may have a basis for an appeal. It is essential to note that the process of filing an appeal can be complex and time-sensitive, as there are usually strict deadlines for submitting an appeal following the court's decision. Additionally, filing an appeal does not automatically halt the enforcement of the vesting order. The homeowner may need to request a stay of execution to temporarily suspend the enforcement of the order while the appeal is being considered.

Conclusion:

In Canada, lenders have various options to recover their investment when borrowers default on their mortgage payments. Power of sale is more common in Ontario, while foreclosure is prevalent in British Columbia and Alberta. Vesting orders are used in specific situations where power of sale or foreclosure may not be feasible. Additionally, alternative options like refinancing, mortgage modifications, forbearance agreements, short sales, and deeds in lieu of foreclosure can help borrowers and lenders find mutually agreeable solutions without resorting to more drastic legal remedies. The availability and feasibility of these options depend on the specific circumstances of each case, the willingness of the parties to negotiate, and the governing provincial laws and regulations. If lenders or borrowers encounter mortgage default, it is always advisable to seek the opinion of legal professionals who are familiar with the laws and regulations in their jurisdiction.