When you have a mortgage on a property and fail to live up to the Mortgage terms a bank has three practical remedies under its standard charge terms – it can move to foreclose on the property, issue a Power of Sale or apply to the Court for a Judicial Sale. As Judicial Sales are exceedingly rare and a bit tricky, we will deal with them in a later article.
Foreclosure is where the bank takes actual title to the property and assumes the entire burden and benefit of the asset. Thus, in the hypothetical situation where a bank forecloses on a $950,000.00 property on a mortgage amount that totals $50,000.00, the bank would be entitled to the entirety of the upside – $900,000.00.
Power of Sale actions allow the bank to sell a property without changing legal ownership of the underlying asset. Under a Power of Sale, a bank is permitted to collect only on the monies owing to them plus the damages of moving against the property. Thus, to continue with our previous example, in the event that a bank moves through a Power of Sale on the $950,000.00 home, the bank would be able to collect the $50,000.00 owing to it, the associated interest and the legal fees in collecting against the asset. The remainder of the money would be returnable to the owner of the property.
Power of Sale
Practically, in residential situations, a bank rarely invokes its right of foreclosure preferring instead to move by way of a Power of Sale. For that reason, it is particularly important to know what a borrower can do to delay or prevent the sale.
First and most importantly, the owner should practice its own remedies. From the date a power of sale is instituted (which can be any time 15 days following default), an owner has 37 days breathing room before a bank begins its substantive legal work and issues a statement of claim for debt of possession. During this period of time, the owner does not need to inform his realtor or buyer of the power of sale proceedings and can therefore achieve the sale of the property without the appearance of financial duress.
Assuming that a sale of the property is not achievable, there are several ways to challenge a Power of Sale. These include:
- Request Information: A borrower is entitled under the Mortgages Act to request information pertaining to the accelerated principal due under the mortgage terms or for information pertaining to the costs associated with the action. When faced with these requests, the lender must provide a correct and complete statement of the principal and/or costs within 15 days, failing which the rights of the lender to enforce its rights shall be suspended.
- Challenging on the basis of Quick Action: If a lender issued a Notice of Sale prior to the expiry of the 37-day period, the subsequent proceedings are invalid.
- Challenging on the basis of Payment: Paying up the Arrears and costs brings the mortgage into order. Despite the fact that the Bank requires payment of the entire balance outstanding, the Act only calls for payment of the outstanding amounts. Payment of these monies would end enforcement actions.
- Court Injunction: On the basis of the Court’s power of equity, the borrower will be awarded an Injunction (an order preventing the lender from continuing the Power of Sale action) provided that all mortgage payments are kept up to date until final disposition. A Court will award an injunction in instances where the borrower can prove that there are reasonable grounds to believe that a few more days or weeks will result in a positive outcome for all involved and that the lender will be fully financially compensated.
- Acceptance of Partial Payments: In many cases, the borrower will have made a partial payment. In this event, under certain circumstances, it may be possible to argue that the action brought against the borrower is at an end and a new action for non-payment must be commenced.
As always, unless you have extreme confidence in the process, do not attempt to deal with Power of Sales by yourself. Consult a lawyer for direction when faced with a lender seeking possession or Power of Sale.