Some landlords and real estate investors use a mortgage to fund their rental properties, which means they commit to making regular payments to lenders.
Unfortunately, tough times can come unexpectedly, making it hard for some people to meet these obligations.
When a borrower defaults on their mortgage payments, a lender may have the opportunity to recover their funds through two legal options: foreclosure and power of sale.
If you’re considering investing in real estate or entering the rental market, you should understand both processes and the steps involved in each. Luckily, that’s the information you can find in this blog post. Read on!
The Foreclosure Process in Ontario, Canada
As mentioned above, the term “foreclosure” describes a legal process through which a lender can recover funds from a borrower who has failed to keep up with their mortgage payment obligations.
In a foreclosure, the mortgage lender takes full ownership of the property, which means that they gain the title of the home. Therefore, this process can take some time and be quite expensive.
When a foreclosure action is granted to the lender, the borrower loses the entire asset, any home equity built, and any potential proceeds from the sale of the property.
What Is the Process of a Foreclosure in Ontario?
The following are the steps involved in the foreclosure process:
- Mortgage default notice: The foreclosure process begins with a default notice, which means that borrowers must be legally informed about the breach of the mortgage condition. However, lenders can only take legal action after 15 days following the default date.
- Notice of sale: After the 15-day period, lenders can choose to dispatch a notice of sale to the borrower. However, they must hold off for at least 35 days from the default date to take further legal action, as borrowers have the right to address these issues.
- Statement of claim: Once the 35-day period passes, the lender can file a statement of claim with the Ontario Superior Court and serve this document to the borrower to legally start the foreclosure process.
- Redemption period: At this point, the borrower has 20 days to address the matter by either disputing the lender’s claims or agreeing to the foreclosure process.
Can Borrowers Stop the Foreclosure Process in Ontario?
Yes! In Ontario, it’s possible to stop foreclosure proceedings. Borrowers just have to get current on their mortgage payments. Below are some options:
- Bring the mortgage debt to a good standing by paying off all arrears.
- Get a private loan from a traditional bank or lending institution to catch up on mortgage liabilities.
- Negotiate a convenient payment arrangement with the lender or discuss any opportunities to modify mortgage terms.
- Consider refinancing the mortgage through a private lender and clear any arrears.
- Find a private lender willing to purchase the current mortgage.
- Sell the property to avoid foreclosure and eliminate the need for expensive renovations or repairs. (Keep in mind that these properties are typically sold at a discounted price.)
- Request a Forbearance Agreement to pause or reduce all loan payments for a specific period to regain financial stability.
- Consider bankruptcy to reduce other debts and increase cash flow that can be used for mortgage payments.
- Find out whether the default proceeding can be changed from foreclosure to power of sale.
- Seek assistance from experts to make informed decisions when faced with these processes.
What Happens After a Foreclosure?
The outcome always depends on the borrower’s financial situation. More often than not, property owners remain legal tenants until they’re formally evicted, so there may be a few options on the table, including:
- Redemption: Although rare, this option allows the borrower to pay off the mortgage debt to reclaim ownership of the property.
- Short sale: Borrowers may have the option to sell the property and use the funds to settle the mortgage debt.
- Foreclosure auction: Sometimes, the bank or court may sell the property at auction and use the resulting funds to cover the debt.
- Bank management: Some banks choose to take control of properties in this condition and allow renters to move in.
- Statutory redemption: In certain scenarios, borrowers can reclaim properties within a year after foreclosure through a statutory redemption, but the full mortgage balance is required.
Power of Sale in Ontario, Canada
Although it’s also a legal process that allows lenders to recover their money from unfulfilled mortgage obligations, a power of sale is different from a foreclosure.
For instance, lenders don’t gain ownership of the property with a power of sale. Instead, this process authorizes them to sell it in order to recover the outstanding mortgage debt.
This sale must be done through a court-sanctioned procedure. Additionally, any funds remaining after the mortgage is settled go back to the property owner (the borrower).
In a foreclosure, the lender cannot sue the borrower for any remaining balance on the mortgage, even if the sale doesn’t cover the entire debt. A power of sale, in contrast, may still allow lenders to file a lawsuit for any shortfall.
How’s the Power of Sale Process?
The power of sale process typically involves asking the court for permission to evict occupants and sell the property without taking direct ownership of it. Thus, it’s an easier, more efficient, and more common method in Ontario.
What to Do When Facing Foreclosure or Power of Sale in Ontario, Canada
Are you going through one of these processes? You can avoid losing your property and protect your investment if you address this issue in the right way.
Although your options will depend on your particular situation, here’s what you may be able to do:
- Always comply with your mortgage obligations and settle every missed payment as soon as possible.
- Contact your lender and discuss the possibility of setting up an arrangement to settle the outstanding debt.
- If possible, especially when lenders aren’t willing to negotiate, make the required payment immediately.
- Consider converting the foreclosure process into a power of sale if the property’s value exceeds the mortgage amount.
- Explore new financing options to pay off the mortgage or sell the property.
Final Thoughts
Do you think you may be at risk of foreclosure or power of sale due to missed mortgage payments? You can avoid these processes and protect your investment properties by understanding the laws in Ontario. Some investors also like to pick up new properties, that go up for short sale after foreclosure.
At Maximum Property Solutions, we can help you manage your rental properties to make the most out of your real estate investment. Get in touch today!
