When speaking of homeowners in the province of Ontario, perhaps the greatest pain can be caused on the receipt of a notice from the mortgagee stating that it is exercising the right given under the "power of sale" provision in the mortgage deed on the home.
This situation occurs frequently to many people and with the current massive unemployment - is expected to occur with greater frequency. With the exception of lenders who are really shysters in disguise and some other lenders who usually have no patience with delinquent borrowers, the conventional mortgagees including banks and trust companies can be expected to take the following action if a person's mortgage payments happen to be in arrears.
A person defaulting on a mortgage payment may expect to receive one or two letters from the lender demanding that arrears be brought up to date. These two letters if ignored by the borrower will result in the arrival of an initial letter from the lender's solicitor, in the manner of a reminder about the arrears - this will include a demand for immediate payment of the arrears and a fee for the services of the solicitor in writing the letter.
If this letter from the solicitor is also ignored, another letter from the solicitor will follow, with a demand for more money for the services rendered in writing the letter, a demand for the mortgage arrears, and a clear warning regarding the rights of the lender to selling the home of the person to satisfy the debt incurred.
If this second letter of warning from the solicitor is ignored as well, it will result in the arrival of a notice under a power of sale. The notice usually states that the entire amount of the mortgage principal plus the interest arrears, which now includes a large legal fee must be paid by the homeowner on a date a couple of days beyond thirty five days of his or her receipt of the registered notice from the solicitor.
This final letter will be received by the homeowner, his or her spouse and also by any party holding judgment executions against the homeowner. There is no use in refusing the receipt of the registered notice, as the law states clearly that when it was given over to the post office, it was considered "delivered," it does not matter if it is accepted by the person or not - the registered letter is still valid as far as the courts of law are concerned.
One of the first angry reactions of most people in such a situation is that if you they are not in a position to pay the arrears, how can they be expected to pay the whole amount along with solicitor's fees? However, the notice does not state that the term of the mortgage has reached an end, and the whole amount does not have to be paid.
However, it is essential for the person to make the late payments, as well as pay the lawyer's charges, as these are added to the mortgage debt.
It is advisable not to delay or procrastinate in making the payments when one receives such a notice. When such notices are ignored and the time limit is crossed, the person is given a notice asking him or her to vacate the home within a few days time. An attempt to ignore this will be useless; the sheriff will evict the homeowner. The home will then be sold on the open market.
The home sold in such cases are not given away as distress merchandise in the open market, at the same time, the mortgagee is under no obligation to wait for the top market price for such a home - the home is usually sold to the party willing to pay the best price for such a home in the open market.
Extreme financial hardships are almost always produced by the receipt of such short notices, as the person must immediately rent a house, if they have an opportunity to do so, they must then put up the first and last month's rent - that will come to two thousand dollars at the very least. Renting out an apartment might be cheaper, but will still come to around one thousand dollars. All this add up the financial burden being faced by the evicted person.
The person must also account for the moving expenses in such a situation, and deal with all the other disruptions of moving out of a well settled home on such short notice - a very unpleasant experience indeed. At this stage, the lender is all powerful and not in the mood to grant any favors to the person being evicted.
A person in this situation may try to make part payment to a bank branch in the belief that this action will cause some delay to the eventual arrival of the day of eviction by making the lender go around again - this will most likely not work. The lender has absolute rights at this stage and the person may receive a letter acknowledging the payment, however, the lender's rights under the power of sale are still paramount and the eviction will be carried out nonetheless.
The only recourse for the unfortunate homeowner besides immediately raising money for payment of the arrears is to sell the home on the open market. This stage needs careful handling and it is here that an especially good lawyer must intercede for the homeowner to have a chance.
The opportunity for the homeowner is to sell the home on the open market before the power of sale notice is received from the lender, however, the homeowner's lawyer must call the lender and let inform them of this proposed sale of the home. Such a communication to the lender is a show of a bit of good faith, and the homeowner will most likely get a sympathetic hearing at this point from the lender.
A home may be sold in the market during the term of the sale notice; the homeowner must still make payment for the arrears within the time limit given in the notice. When such a sale is a good, solid one with no conditions on the terms of sale, the lawyer who brought it about can be trusted as an efficient lawyer who may also help the person get interim financing. Such a lawyer can help the person get the advanced money back out of the amount received from the sale of the house.
When a lender or mortgagee sets sights on selling a house under the power of sale, it comes with certain responsibilities that must be borne in mind as they are very important.
The lender must give a notice to the borrower - the lender can only proceed towards the sale of the house under the power of sale if the borrower does nothing about this notice. In such an instance, the lender may have the homeowner evicted, leaving the lender with an empty house. The lender is then free to sell this house on the open market to make up for the arrears incurred by the borrower.
When this stage is reached, certain lenders have an opinion that they are at freedom to sell the property for any price it fetches on the market as long as the price received for the house covers the mortgage debt and legal fees due to them.
However, the courts frown on such behavior on the part of such lenders and judgments that render such sales null and void have been pronounced. This is small relief for the homeowner but it is nevertheless important as a check on errant lenders.
This is the reason that large conventional lenders usually take the safe route and properly communicate to the borrower at all times. This action ensures that the borrower who stands to lose his property is not left out of a fair shake out during his or her time of great misfortune. However, all lenders do not seem to follow this rule in every case.
A court penalized at least one bank, which acted as a lender and mortgagee in the case of one homeowner. In this instance, the property was deemed to be sold too cheaply on the market by the court. This is what transpired in this case:
In this case, the bank had sold a property under the power of sale for $45,000 and the court deemed this amount as being too low. The court in this case felt that the real value of the property was around $65,000 and came down heavily on the bank for selling the home cheap in the open market without considering its real value.
The court felt that the bank had acted in a negligent and careless fashion when making the sale and directed the bank to compensate the former owner of the property for this failure to sell the house at its true value.
The main observation of the court was that the lending bank had not made enough of an effort in making the sale of the house and that the property should have been given a wide exposure to different buyers on the open market by being placed on multiple-listing to get the real value - multiple-listing is a service of the real estate board.
It has been the opinion of judges on more than one occasion that the lender is not to be considered the trustee in the power of sale, and may be permitted to give preference to their own interests during a sale. However, judges have also observed that all lenders must act in good faith during such affairs and must take reasonable precautions and attempt to get the true market value for the property at the time it is selling it in the open market.
A court has observed that the prime duty of such a lender is to act bona fide during the exercise of its power of sale. This court further listed out certain duties applicable to a lender in these cases.
These duties of the lender are summarized here: First, the lender must at all times make every attempt to realize the fair value of the property when selling it on the open market. Second, the lender must only deduct reasonable expenses from the proceeds of the sale. Third, the lender must consider at every stage, the interests of the borrower while considering its own interests. Fourth, the lender must not be found conducting the sale of the property in bad faith.
In these instances, it becomes a prudent move for the lender to conduct a proper appraisal of the property before moving with a sale. However, appraisal costs are also ultimately borne by the borrower and add to the financial burden.
Once a lender has had a property appraised, to get the real value of the property, the property must be listed on a multiple-listing service; this step allows it to have wide exposure to different buyers in the market.
When a lender follows these two basic steps, it would amount to showing good faith to the borrower and the lender will avoid being criticized for attempting to take advantage of the unlucky borrower. By taking these steps, the lender is seen as not having hurriedly and callously sacrificed the property just to make up for the arrears incurred by the borrower.
To ensure exposure to potential buyers, the broker who is listing the property must certainly place the "For Sale" sign on the front lawn of the property being sold. In this regard, the lender should ensure that the broker hired is earning his money advertising the property as well.
One of the most important reasons for a low market value of such property is that many people equate a power of sale with bargains, and many buyers of such property will make lowball offers and this makes it hard to get a reasonable market price for the property being sold.
Offers made by such buyers will not impress a responsible lender, as a decent market price for the property can be realized with reasonable effort made by the broker hired for this purpose.
Once all the payments have been made and the debts cleared, the money leftover is given to the person who has lost the property. Therefore, it's in the best interests of such persons to make sure that his or her lawyer is doing everything to ensure that he or she is receiving fair treatment and the just share from the proceeds of the sale.