What Happens When a Borrower Default on a Mortgage in Ontario
Although defaulting isn’t common in mortgages, defaulting can still happen. Mortgage enforcement occurs when a borrower fails to adhere to agreed terms with a lender, especially failure to repay the loan.
When a mortgagor, the borrower, fails to make a mortgage payment, the lender can seek enforcement remedies. Each Canadian province has its own laws, rules, and regulations around enforcement and debt recovery. Consider seeking a reputable lawyer to help you understand your rights.
At Sondhi Defence, we represent lenders and borrowers in debt recovery and mortgage enforcement cases. Our experienced lawyers provide diligent legal representation to protect your rights and interests.
Understanding Mortgage Enforcement in Ontario
The lender has enforcement remedies if a borrower fails to meet their mortgage obligations. Mortgage enforcement is a legal action a lender takes to recover debt when a borrower defaults on mortgage payments.
Mortgage Enforcement: Laws and Regulations
Mortgage enforcement is governed by the following legislation and regulations:
- Land Registration Reform Act (LRRA): The LRRA ensures that mortgages are protected and enforceable against third parties. The regulation requires a Notice of Security Interest to be registered on the title. This gives notice to the subsequent purchasers or mortgagees of the existence of a mortgage.
- The Land Titles Act (LTA). The LTA provides the legal framework for power of sale proceedings. The mortgagee has the right to sell the mortgaged property without court involvement. It sets out procedures for conducting the sale of mortgaged property, including;
- Requirement for advertising
- Obtaining valuation
- Conducting tender process.
- Mortgages Act: The law sets out the legal framework for mortgages, including the rights and obligations of lenders and borrowers. It covers aspects of mortgage enforcement in case of default.
Ontario Mortgage Enforcement Remedies:
There are several mortgage enforcement remedies a lender may pursue, including:
Power of Sale
Power of sale is a legal provision granting the lender the right to sell property used as collateral when the borrower fails to fulfill mortgage terms.
The power of sale process begins when the borrower fails to make at least one payment or breaches other loan covenants, such as failure to pay property taxes. The lender may contact the homeowner to inform them of the default and allow them some time to cure the default, but this is not a legal requirement.
In a power of sale, the homeowner maintains ownership of the property until it’s sold. Here are the steps involved in the power of sale process:
- Notice of sale. The lender issues a Notice of Sale 15 days after a homeowner fails to make the mortgage payment. The notice is served via personal service or registered mail to inform them to remedy the default before an enforcement action is taken. The notice, as prescribed by the Mortgages Act, must include the following:
- Information about the property
- The amount claimed to be due for principal
- The sale date
- Redemption period: The redemption period is usually 35 days. The period allows the defaulter to pay arrears and extra costs related to the default. If the borrower pays the pending amount within the period, they can keep their property.
- Property sale: If the borrower fails to redeem the mortgage within the period, the lender issues a Statement of Claim and proceeds with the sale.
- Application of proceeds: Proceeds from the property sale are used to pay off the mortgage debt and related fees. Any surplus from the deductions is returned to the borrower. In case of a shortfall, the lender pursues the borrower for the remaining debt.
A judicial sale involves the court-ordered sale of a property to recover the outstanding debt owed by the mortgagor to the mortgagee. This process is typically initiated when the mortgagor defaults on the mortgage agreement and other attempts to resolve the default have been unsuccessful.
Foreclosure is a legal remedy where the lender goes to a civil court to get an order of foreclosure. The mortgage lender acquires legal property ownership and can sell the home on the open market and retain sale proceeds. The process of foreclosure in Ontario is as follows:
- The borrower defaults on their mortgage payments as agreed in the mortgage contract. The lender conveys a Notice of Default to the borrower. The notice informs them of the default and invites them to rectify the situation.
- The lender begins legal action if the borrower fails to settle the default. The mortgagee files a Statement of Claim with the court outlining:
- Details of the default
- The amount owed
- The lender’s motive to foreclose on the property
- The borrower is served with a Notice of Action after the Statement of Claim is filed. The notice gives the borrower information on foreclosure proceedings and a chance to respond.
- The borrower has 20 days to file a Statement of Defense to dispute the foreclosure. If no defence is filed, the lender requests a default judgment from the court.
- The court may issue a Redemption Order, giving you a certain amount of time to repay the loan.
- The court may issue an Order for Foreclosure, transferring the property to the lender.
- The court may alternatively issue an Order for Sale where a court-supervised auction is held, and the borrower is given 30 days to leave the property.
Rights of Lenders and Borrowers
When a borrower defaults on a mortgage payment, the lender has rights at their disposal. However, the rights vary depending on the mortgage agreement terms and type. Common rights mortgage lenders may exercise in case of mortgagor default include:
Right to accelerate the loan
Right to enforce security
Right to repossess collateral
Right to collect outstanding debt
Right to credit reporting
On the other hand, defaulting borrowers have rights in the mortgage enforcement process. Borrowers’ rights ensure fair treatment and protection of their interests. Some of the rights of borrowers during debt collection include:
Right to notice
Right to redeem the property by paying off the outstanding debt
Right to dispute the enforcement action
Right to fair treatment
Right to cure the default
How Sondhi Defence Can Help
Debt recovery and mortgage defaults have become a significant concern for lenders and borrowers. But, at Sondhi Defence, we help the parties involved in private mortgages in many ways, including:
- Providing legal advice and guidance throughout the process
- Representing you in negotiations to reach mutually beneficial solutions without going to court
- Ensuring all necessary legal documents and agreements are properly drafted and executed
- Helping you understand your options during enforcement or debt collection actions
Seek Immediate Assistance at Sondhi Defence
Parties in a mortgage agreement need to know what to do if things go wrong in the borrower-lender relationship. Mortgage enforcement can be overwhelming for lenders and borrowers. So, if you are involved or expecting a mortgage enforcement action, contact Sondhi Defence today.
Get In Touch
If you or someone you know has been charged with a criminal offence, call us right away at 1 (855) 4-SONDHI and get our team on your side.