A short discussion on Power of Sale and Foreclosure in Canada
Unfortunate end of a mortgage –
When a borrower fails to meet his or her mortgage commitments, the lender may consider the borrower to be in default. The lender then can start taking certain actions as defined by Law. Following is an outline of what may happen. It is better that you seek legal advice if you need proper information on these matters.
In Ontario it is mostly the Power of Sale process which is enforced. The details are generally defined in the standard charge terms. In the United States you would often read in the news, lenders are taking action of foreclosure. In Canada usually it is to sell the property under Power of Sale. While both are fairly complicated legal processes, there are significant differences between them.
Below are the descriptions of both –
Power of Sale
Power of Sale is a provision which allows the lender the power to sell the property when the borrower defaults the mortgage. In this process the ownership changes hand after the sale is complete. When selling by Power of Sale, the lender will still have some obligations to the mortgagor. When selling under Power of Sale the following may occur:
- Ownership: The ownership of the property does not change hands till the subject property is sold.
- Use of a relator: A relator may be used depending upon the jurisdiction.
- Proceedings goes to the owner: Extra money is given back the homeowner, in case of a shortfall the owner is responsible.
- No Fire Sale: The sale is normally done fast but no fire sale. The offers from the buyers should be carefully examined. The homeowner may request an accounting.
- Default Insurance Claim: The lender may not be able to get the full money back. If the property is insured against default then the lender can make a claim and the insurer will pay the lender and sue the homeowner for that amount.
Foreclosure is a legal proceeding where a lender gets a court order to take over the property. There are strict rules of foreclosure. In a foreclosure ownership goes to the lender. The title to the property is registered in the name of the lender who accepts the property as a full payment of the loan. In a foreclosure sale the following is generally observed.—
- Ownership: The lender becomes the owner
- Price is not important: Lender pay less attention to the price.
- No negotiations required: The lender does not need to negotiate with prospective buyer.
- Profit or loss all to lenders: Any extra money belongs to the lender, so as any loss.
- Rights: The mortgagor has the right to have the property sold by judicial sale.
- Right of owner is limited: The owner may request for an accounting before the final order for foreclosure
|Power of Sale||Foreclosure|
|Borrower remains the title holder||Property gets transferred in the name of the lender|
|Property sold using a relator most of the times||Property sold in auction most of the times|
|Borrower remains responsible for any losses the lender may have||Borrower is no more responsible for any loss of the lender|
|Any extra money from the sale goes to borrower||Any extra money from the sale stays with the lender|
Table R.2 Foreclosure