Perhaps one of the biggest initial questions I am asked is “how long do I have to try and pay off the bank before I lose the property?” The answer to that depends on the situation and what stage of enforcement the lender is at before I am consulted by the client or potential client.
As will be seen later in the series, loss of the property through foreclosure or judicial sale occurs after a Statement of Claim has been issued in the Ontario Superior Court. Once the Statement of Claim has been issued, the lender has up to 6 months to serve it. Most lenders, however, will want to effect service quickly. Once service occurs, then the borrower has a guaranteed 20 days (more if the borrower resides outside of Ontario) to put in a defence or a request to redeem. If a request to redeem (a form saying, in effect, I want to pay off the lender but just need a little time to do this) is filed, then the borrower can have another 60 days at least to pay the money to the lender.
Foreclosure actions and judicial sales are far less frequently used than the Power of Sale. The power of a lender to sell the property secured by a mortgage most often exists in the terms of the mortgage itself. However, if you have a relatively simple mortgage (often involving private lenders), the Ontario Mortgages Act also provides for a statutory power of sale.
The starting point is the determination by the lender when it will start the enforcement proceedings. Whether the lender is relying on the Mortgages Act or the terms of the mortgage for the power to sell, the Act requires that a Notice of Sale cannot be sent until at least 15 days after the mortgage goes into default. That is the minimum. Beyond this it is a question of how long the lender will wait until it “pulls the plug” on the mortgage. My experience has been that most larger financial institutions will generally wait 3 to 4 months before they start power of sale proceedings. Private lenders are less forgiving. That said, if a recession hits the lenders could either increase the amount of time being given (in the hopes that the real estate market would improve before they try to sell the properties) or it could cause them to act more quickly to get whatever they can get while they can get it.
Once a notice of sale has been sent, the lender will be required to give a minimum 35 day notice period of the intention to sell the property (in the case of power of sale terms in a mortgage) or 45 days notice (in the case where the mortgage is silent and the lender is relying on the power provided in the Act). There is then a further divergence between mortgage-based powers of sale and legislation-based powers of sale.
Where the mortgage permits a power of sale, the notice of sale cannot be sent until 15 days after default and must give a minimum of 35 days notice of the intent to sell. This gives the borrower a guaranteed minimum of 50 days after default to try and either put the mortgage into good standing or to pay off the lender. After the expiry of the 50 days, the lender can start the sale. However, where the mortgage does not provide for a power of sale, and so the lender has to rely on the power under the Mortgages Act, then even though we have the same 15 days before the notice can go out and then there is the 45 day notice period (for a total of sixty days – or two months), the Act further provides that the sale cannot occur until at least 3 months after the default – so that is the minimum provided for that situation. That said, 90% + of mortgages will contain power of sale provisions, so you would most likely find yourself in the 50 day minimum situation.
In terms of “where” the enforcement will take place, this is really only an issue for foreclosure or judicial sale proceedings. As set out above, these start with the issuance of a Statement of Claim. Suppose you own the property in Toronto and the lender is also based in Toronto. It would stand to reason that you would be sued in Toronto, right? Not necessarily. The lender can sue anywhere in Ontario that it wishes unless a Rule of Civil Procedure or the Mortgages Act prohibits this. The Act is presently silent on the issue and Rule 64 does not restrict lenders to suing in the judicial district where the property is located (although this has been suggested several times over the years). So, it is fairly common practice for lenders to start their lawsuits in “smaller” judicial centres. For example, I know of one large bank that uses the Hamilton office of one of my former firms to process all of its mortgage claims. I know another lender who uses the Brantford court office to do all of its claims for loans throughout the province. Why would they do this? Because the smaller judicial centres are not as busy as the larger ones (such as Toronto, Ottawa and London). This way the claims get issued quicker and, if no defence is put in, default judgments are obtained more quickly as well. So, if you have property in Toronto and your lender is here as well, don’t be too surprised if you suddenly find yourself being sued by the lender in the Superior Court based in Orangeville. That said, the current mode of thinking among politicians is “how do we help out the little guy without making it too unfair for the lenders?” A simple amendment to the Mortgages Act requiring the lenders to sue in the judicial district where the property is located may give borrowers a few extra days’ grace while the lenders send their claims out to non-centralized locations. Who knows, that might just happen.