Articles & Resources
Understanding the Notice of Sale and Its Legal Requirements
A notice of sale is a document that a lender issues to a borrower who has defaulted on their mortgage, notifying them that the lender intends to take possession of and sell the property. The notice of sale serves as the lender’s authorization to sell the property, and it is the first step in the enforcement process.
What is a Mortgage Default?
For any number of reasons, homeowners may struggle with their mortgage payments. Falling behind on payments or missing payments, though, can lead to what’s called mortgage default.
Common examples include:
- failure to make payments;
- failure to discharge the mortgage at maturity.
When a Notice of Sale Can Be Issued?
In accordance with the Mortgages Act, a notice of sale cannot be issued until the borrower has been in default for at least 15 days, and the sale cannot take place until at least 35 days after the notice has been given.
A borrower can attempt to negotiate an extension of time with their lender if they are in default. However, if the lender is not agreeable, they have the right to move forward with a notice of sale.
Who is Entitled to a Notice of Sale?
The lender’s solicitor must sign the notice of sale, and it must be given to:
How Notice Must Be Given?
- By personal service;
- By registered mail, addressed to the person to whom it is to be given at the person’s usual or last known place of address;
- To the last known place of address that is shown on the registered instrument under which the person acquired an interest;
- By leaving the notice at the person’s usual or last known place of address.
- If the mortgage agreement specifies that personal service is the only acceptable method, then personal service is required;
- If the mortgage agreement specifies an address for notice, then to that address.
What are the Contents of the Notice of Sale?
The contents of the notice must comply with the statutory requirements, and any errors could potentially invalidate the notice of sale. The notice of sale must specify:
- the amounts due for the principal amount;
- accrued interest;
- and any other fees associated with the mortgage (legal fees, discharge fees and administrative fees).
However, the courts have recognized a “degree of tolerance for errors,” and minor irregularities in the notice of sale may not necessarily invalidate it. The courts will consider the degree of harm or confusion caused by the errors in determining the validity of the notice of sale.
In the Lakewoods Resort Developments Inc. v. Frontenac Mortgage Investment Corp., a borrower sought to have a notice of sale set aside due to errors in the notice, including that it was not signed and did not adequately describe the property. The court found that the errors did not cause harm or confusion to the borrower and therefore did not invalidate the notice of sale.
Case Study: 1173928 Ontario Inc. v 1463096 Ontario Inc.
In this case, 1463096 Ontario Inc (“146”) owned a commercial property which was being leased to 1173928 Ontario Inc. (“117”). However, 146 had a mortgage on the property with Bayview Financial, which was in default. This default caused 117 to stop paying rent. Eventually, 117 purchased the mortgage from Bayview Financial, becoming both 146’s new lender and their tenant.
Then, 117 attempted to sell the property multiple times using the original Notice of Sale issued by Bayview Financial, but 146 then requested Mortgage Statements to determine the amount required to discharge the mortgage and redeem their property. As 117 was unable to find a buyer, they incorporated a new entity and conveyed the property to that entity.
146 argued that the original Notice of Sale was invalid because the amounts were incorrect. However, the Court found that minor irregularities in a notice of sale will not void it, as its purpose is to allow the borrower to understand their position concerning default and potential redemption of the property, and 146 was able to determine their position despite the errors in the notice.
The Court of Appeal also found that if 146 had wanted to know the exact amount of the outstanding mortgage debt, they could request a new Mortgage Statement, which is precisely what they did. However, when 146’s requests for payout statements were not answered, in accordance with s. 22 of the Mortgages Act, the enforcement proceedings were suspended. Therefore, the lender did not have the authority to sell the property.”
In conclusion, it is crucial to comply with the legal requirements when issuing a notice of sale. Any errors or irregularities in the notice of sale could potentially invalidate it, causing unnecessary delays in the foreclosure process. Therefore, it is important to seek legal counsel both when preparing and issuing a notice of sale and when trying to fight it.