More Canadians require a mortgage nowadays
When purchasing a home, many Canadians require a mortgage loan in order to purchase the property. These mortgage loans come with monthly payments to slowly eat away at the principal of the loan and cover the annual interest of the loan. However, for any number of reasons, a borrower may default on several payments in a row, causing the lenders to worry about the repayment of their principal. This process will trigger the Power of Sale Clause found in almost all mortgage commitments.
What is a Power of Sale?
A power of sale will grant the lender of a mortgage loan the right to take possession of a property secured to the loan, in order to sell it on the market and recoup their loan. It is common that before this escalation, the lender will contact the borrower to notify them of the late payments, and allow for a grace period so that the borrower can return to good standing. However, if the borrower cannot return to good standing, the lender has the right to evict the borrower and list the property on the open market. The lender is required to sell the property at fair market value. The borrower then has the right to the profits of the sale once all associated lender, legal, and real estate fees are paid.
Notice of Power of Sale:
In Ontario, this policy is based on the Mortgages Act of Ontario. The notice of exercising the power of sale shall not be issued until the default has continued for at least 15 days. The sale cannot be made for at least 35 days after the notice has been given. It also asserts that a lender may reserve the right to enter the power of sale process without notice any time a mortgage has been defaulted on for at least 3 months. The key thing to remember is that the lender is activating this clause to reclaim the principal and interest owed. Therefore, a borrower has a few options to avoid this process.
How to Stop a Power of Sale
If you have been issued a Power of Sale, there are a few remedies you can pursue:
1. Contact your lender directly to work out a solution:
Power of Sale is a timely and complicated manner. Most lenders are very willing to work with borrowers to sort out any payment arrears and set borrowers up to make continued payments on their mortgages.
2. Refinance your mortgage with a new lender:
Alternatively, if you have adequate equity in your property, you can pursue a refinance of your mortgage to clear any arrears and set yourself up with the new loan. However, if the terms of this new mortgage as less advantageous than your current mortgage, you may have to pursue the third option:
3. Sell your property independently
If you have enough equity, you may consider selling your property, paying out your current mortgage, and using the proceeds of the sale to prepare for the purchase of a new home.
Power of Sale/Foreclosure
Power of Sale proceedings can be a stressful experience. If you have concerns that you approaching the power of sale process, or have been issued power of sale by your lender, reach out to your trusted mortgage advisor as soon as possible. They’ll be able to review your entire financial profile and provide a solution that best serves your needs. If any of the above is happening to you at the current moment don’t hesitate. Book a meeting today to discuss your options with a trained professional, here.
