It’s a dreaded situation to think about, however, with rising interest rates and a looming recession, the possibility of missing a mortgage payment or two can become a realistic scenario for many Canadian homeowners. It is important to, at the very least, know and recognize what happens when you miss a mortgage payment(s) and what can happen next. The good news is that are several potential things you can do to avoid losing your home in a foreclosure or power of sale, but they all require awareness and working with your lender and other professionals to avoid the potential loss of your property.

‍It is very important to note that this article is not legal advice, nor is it exhaustive of all options.  It is always important that you engage with a professional as soon as you can,  to help navigate your specific situation.

‍Once you've missed your mortgage payment for longer than 15 days, your lender has the right to send you a notice of sale or notice of sale under mortgage.  

Fifteen days can go by very quickly.  It may seem unfair, but this is within the lender’s rights and it’s important that you don't hide or avoid your lender at this point. Rather, acknowledge the missed mortgage payment and call your lender to inform them of your situation and ask them if and how you can bring your mortgage to a good standing.  Most lenders will be willing to work with you to resolve the situation, so it is important to face the issue head-on instead of waiting for the next steps to happen and for the lender to escalate to their legal team.

What is a notice of sale?

A notice of sale is the first step towards the power of sale in Ontario.  The power of sale is the most common type of foreclosure in Canada, and is the preferred process for Ontario (other provinces follow a different process, which we will discuss in a future blog). A power of sale virtually grants the lender the authority to take possession of the property and sell it off in the event that you default on your mortgage.  It is a standard part of most mortgage agreements that you sign at the branch or at the lawyer's office when you get your mortgage.

How can I prevent a power of sale?

Lenders are usually quite flexible and willing to work with a homeowner who has fallen behind on mortgage payments. This is because a power of sale process takes time and is quite complicated.  Remember that your lender is in the business of lending money, not owning properties. If you have defaulted on your mortgage, contact your lender immediately to potentially stop a power of sale and explore how it can be averted. Depending on the equity you have in your home, you may be able to refinance your property with another lender and pay off your initial mortgage, or in some situations, arrange a second mortgage to pay off the first mortgage.  

A new mortgage may allow you to reduce your monthly payments through a longer amortization process. Similarly, you may be able to have the opportunity to sell your house prior to a power of sale and use the proceeds from the sale to pay off your mortgage balance.

How long do I have before the power of sale proceedings start?

Before the power of sale can begin, the foreclosing lender needs to serve you notice and allow for a redemption for a certain period of days. In Ontario, this time period is 37 days. This means that you have 37 days to clear the mortgage debt in full and bring your mortgage to good standing with your lender.  If the power of sale is statutory, you have 45 days to come up with the money. Under the mortgage act, the lender has no right to commence any further action against you until the notice of sale expires.

What if I’m unable to bring my mortgage to good standing after 37 days?

After the 37-day period of the notice of sale expires, if you still cannot bring your mortgage up to good standing, your lender will likely serve you with a statement of claim for the outstanding debt, as well as for taking possession of the property. After receiving a statement of claim, you have 20 days to file a statement of defence response in court.  Not filing a response in court will lead to a default judgment and award a writ of possession to your lender.  However, if you do choose to file a defence, you’ll need to be aware that enforcement of security for non-payment is the right of the lender.  A successful defence will have to prove that there are some real issues with your lender.

Once your case goes to court, if the court decides against you, the lender can activate the eviction process. Once the eviction process is completed, your lender will list your house for sale under power of sale and use the funds from the sale to pay off the debt. If the final selling price is greater than the amount you owed on the house, you will receive the balance; after the fees have been covered.  If they do not sell the house for enough money to cover the debt, the lender will still hold you responsible to cover that balance. The power of sales process above applies specifically to the province of Ontario as other provinces such as Alberta and British Columbia follow a foreclosure procedure which has some key differences.  More on those in a future blog.

The Bottom Line

Nobody likes to think about missing a mortgage payment or defaulting on a mortgage.  It can be a daunting and stressful process, but there are several options to try before your lender forecloses on the property.   It is always best to face the situation head-on and engage your lender and other professionals such as your mortgage specialist or your lawyer to determine which options may suit your situation best.