Canada, being a kinder gentler version of America, has its own remedy for mortgage default (a type of foreclosure) called Power of Sale (POS). If you don’t make your mortgage payments (first, second or even third), the mortgage holder has the right to commence POS procedures against you and your property.
When they do so, they must first provide you with a 45-day notice of their intent, after which they are entitled to serve on you a 15-day writ-of-possession, which means after 60 days, they could hire a sheriff to evict you.
Power of Sale vs. Foreclosure
Why is this a kinder process than foreclosure? Well, in a POS proceeding, you have the right to redeem up to a few minutes before your property is sold to someone else.
And, if it is sold to someone else, and if there are any proceeds from the sale over and above the face value of your mortgage(s) plus their legal, accounting and marketing costs, they are required to pay this surplus to you.
Under US foreclosure rules, the lender comes into possession of your property, and they keep any overage plus you have no right to redeem. This means that even if somehow you find the money to cure any missed payments and legal costs, you can’t get your property back.
Having said this, there is an advantage to having your property foreclosed as opposed to POS—in the US, residential property loans are non-recourse, which means if there is any deficit, you are not personally on the hook.
Canadian Foreclosures worse than U.S.
Thousands of Albertans discovered the opposite when former prime minister Pierre Trudeau cut the oil industry off at the knees by imposing his ill-fated National Energy Plan on the nation in the 1980s.
Tens of thousands of folks in that province were laid off, and when they could no longer keep up their mortgage payments, there was an epidemic of homeowners walking into banks and other lending institutions to give back their keys, thinking they were free of their obligations.
Not so, I’m afraid—any deficit in Canada is a personal obligation. Therefore, a few months or even a few years later once lenders had crystallized their losses, they started receiving menacing demand letters from lawyers and then collection agencies insisting on payment.
Of course, when thousands of POS homes are put on MLS at the same time (a requirement of the POS process—lenders can’t simply sell your property to their friends at a discount, although many have tried), housing prices collapse further, making individual deficits worse.
Huge numbers of lives were ruined, marriages collapsed and opportunities lost. Alberta has never forgiven the Liberal Party of Canada.
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Even when your property is under Power of Sale, you are still the registered owner. So not only do you have the right to redeem if you can scrape the funds together to cure any default, you have the ability to hire your own REALTOR and sell your property yourself.
Almost certainly, you will get a higher price than the lender’s REALTOR since you and your handpicked agent are highly motivated in this regard.
This is why you sometimes see two MLS listings for the same property. It’s a race—who can sell the property first, fastest usually wins.
Mind you, again, lenders have to be careful—they can’t just take, say, a property with an appraised value of $575,000 and flog it for $400,000. They can and should be held to account by any court for such reckless behavior in my opinion.
(Please note that Power of Sale and Foreclosure are complex subjects and clients should always seek independent legal counsel.)
88-Year Old Victim
More recently, a client of mine, Alexa, came to me with a sad tale.
Her brother Johnny (names and places have been changed to protect the privacy of those involved) convinced their 88-year old grandmother in Brampton to put a $280,000 mortgage on her house last year.
It appears she never received ILA (independent legal advice) but she did get a POS notice from the lawyer representing the lender. Alexa called me from her grandmother’s house, and both ladies were in quite a state—the lawyer was threatening Nana with eviction. What could they do?
A lot, it turns out.
Illegal Mortgage and Power of Sale
Without ILA, the lawyer who will be representing Nana next week will inform the lender’s solicitor that the mortgage was fraudulently entered into, in which case, it’s as if it was never registered. Sorry she doesn’t owe a cent.
He will also note that there apparently was no 45-day POS notice period provided so his writ of possession is null and void if not patently illegal. A decent lawyer can almost certainly tie up the process for a few months in my view.
Meanwhile, Nana and Alexa can easily re-finance Nana’s house—it has an appraised value of $575,000 so her LTV (loan to value) ratio will be just over 50%. She will need enough on the re-finance to cover the 1st mortgage amount ($275,000) plus some legal and other fees.
Fraud and Malpractice
But wait, should they do this?
What happened to the proceeds of the mortgage?
Where’s that $275,000?
Turns out, they’re not sure although Johnny has since moved to Costa Rica, which conveniently does not have an extradition treaty with Canada. So we can assume the money traveled there with him.
The story gets stranger. Turns out the lawyer representing the lender is married to him. Huh?
That’s right—the lender’s wife is a solicitor. Now I’ll leave it up to the reader to draw their own conclusions as to conflict of interest, and how ILA could possibly have been missed for a woman who is 88.
I think the Law Society of Ontario might soon be hearing from Nana’s lawyer about possible malpractice, and I would guess that she will never have to repay any money whatsoever in this dodgy affair.
Keep Trustworthy People Around You
Child abuse and abuse of women are terrible issues. But in my experience, elder-abuse is the fastest growing problem of this sort in an aging nation like Canada.
So what are you doing about it?
The most important thing in life (at any age) is trust, and having people around you that you trust as you grow older, as well as people that you can access for honest, knowledgeable advice, are very important.