A mortgage on your home will most likely be the most significant debt you will incur in your lifetime. A commitment in which you will be obligated to pay for a considerable amount of time – in the majority of cases anywhere between 10-30 years.
That said, when a borrower defaults on their loan and from their obligations in the mortgage agreement, the lender has two possible remedies.
Power of sale
This is the most frequently used remedy.
Pursuant to Ontario's Mortgage Act upon a mortgage default the lender is entitled to determine that the mortgaged property in question should be sold to a third party. This remedy, if you will, is by far the least complicated and permits the lender to recoup the balance remaining. The lender however, must give the borrower written notice by registered mail 45 days after default.
The lender does have a legal obligation to sell the property at the fair market. If there is equity in the property, the remaining balance will go to the borrower after the mortgage balance and any other associated fees such as legal fees have been paid. If the sale does not cover the balance of what is owed, the borrower is still liable for the remaining balance.
This process can only be prevented by the borrower paying the arrears and the lenders legal fees or by payment of the remaining balance of the defaulted loan in its entirety.
Foreclosure
Foreclosures is a legal proceeding initiated by the lender to obtain the full legal title to the asset outlined in the mortgage agreement.
If the value of the asset is less than what is owed, the lender cannot pursue the borrower for the remainder. Should there be equity in the property or proceeds remaining from a subsequent sale, the lender is under no obligation to account the borrower for the equity, or the proceeds.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.