Mortgage Defaults and Enforcement in Ontario: What You Need to Know About Power of Sale, Foreclosure, and Credit Impact

/in , /by

The Early Signs: Late or Skipped Payments

Missing a mortgage payment doesn’t automatically trigger enforcement, but it does start a chain of potential consequences:

  • Late Payment: Usually within a 15-day grace period. If not cured, a late fee is charged.
  • Skipped Payment: More serious—when not made up before the next due date, it creates a rolling default where each future payment is considered late.

Impact on Credit: The first missed payment can drop a borrower’s credit score by 80–100 points. These notations (e.g., M2 or R2) remain on a borrower’s credit report for six years.

Default & Demand

When defaults continue, lenders will issue a Demand Letter, often citing additional defaults such as:

  • Failure to pay property taxes
  • Lack of property insurance
  • Deterioration of the property
  • Illegal use of the property

Power of Sale vs. Foreclosure: What’s the Difference?

Power of Sale: Lender sells the property, Former owner may get surplus proceeds, Typical duration: 6 months, Preferred where equity exists.
Foreclosure: Lender takes title to the property, Owner loses all equity, Can take over a year, Courts reluctant unless no equity.
Most lenders opt for Power of Sale, as it’s quicker and allows the borrower a chance to redeem the mortgage.

Step-by-Step: The Power of Sale Process

  1. Due Diligence: Who’s on title? Is it a matrimonial home? Are there tenants or liens?
  2. Notice of Sale: Can be issued 15 days after default. Must give at least 35 days before sale.
  3. Redemption Period: Borrower can cure the default or refinance. Brokers and realtors—this is your window to save the deal.
  4. Statement of Claim: If default continues, the lender files a claim for possession and judgment.
  5. Writ of Possession: Issued after default judgment. Sheriff’s office schedules eviction.

Credit Consequences of Enforcement

A court judgment will impact the borrower’s credit for:

  • 6 years on Equifax
  • 7 years on TransUnion

If a lender suffers a shortfall after the sale, they may pursue deficiency enforcement against other borrower assets (e.g., bank accounts).

Distributing Sale Proceeds

Funds are applied in this order:

1. Property tax and condo arrears
2. Sale and legal costs
3. Outstanding mortgage balance
4. Other creditors
5. Borrower (if anything remains)

Don’t forget about super priorities like HST and source deductions—they can trump secured creditors.

Buying Under Power of Sale: Know the Risks

Buyers often assume these sales are “bargain deals”—they aren’t.

  • Lenders typically get multiple appraisals and list higher than appraised value.
  • Sales are strictly “as is”, with no warranties on zoning, work orders, structural integrity, title issues, and chattels.
  • There are no post-sale adjustments—buyers must do full due diligence.

Liens & Tenancies: What Buyers and Brokers Must Know

  • Construction liens and condo arrears may survive the transfer.
  • Tenants under the Residential Tenancies Act (RTA) are not automatically removed—purchasers may inherit them.
  • A purchaser can evict a tenant for personal use, but must follow LTB procedures.
  • Month-to-month tenants may be evicted for non-cooperation with appraisals or showings.

Commercial Tenancies: A registered lease may bind the mortgagee. If not registered, the mortgagee usually has priority.

Borrower Redemption: It’s Not Over Until Closing

Even if an Agreement of Purchase and Sale is signed, borrowers retain a right to redeem the mortgage until the day before closing, per the Hornstein v. Gardena Properties Inc. ruling. Lenders typically include clauses allowing them to cancel the sale if the borrower pays out.

Final Note: Fixed-Fee Enforcement Matters

At Rabideau Law, we’ve handled thousands of real estate closings and enforcement matters. We offer fixed-fee pricing, evening/weekend signings, and proactive support for brokers, lenders, and borrowers. Unlike most firms, we don’t charge hidden disbursements—just transparent, reliable service.

Have Questions About Enforcement?

Whether you’re a borrower under pressure, a broker trying to salvage a deal, or a lender facing default, our experienced team is here to help.

Visit: www.rabideaulaw.ca
Contact: info@rabideaulaw.ca
Call: 519-957-1001