Power of Sale v Foreclosure

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.

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. 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
the walking dead staggering 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[1]),
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.

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.

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-fi to cover the 1^st
mortgage amount ($275,000) plus some legal and other fees.

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.

Child abuse and abuse of women are horrible, 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.

Bruce M Firestone, B Eng
(Civil), M Eng-Sci, PhD, Century 21 Explorer Realty broker, Ottawa Senators
founder @profbruce bruce.firestone@century21.ca www.brucemfirestone.com

[1]
Note that 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.

-This article first appeared on Spirepoint.ca, https://www.spirepoint.ca/88-year-old-woman-victim-of-illegal-mortgage-and-power-of-sale/

@ profbruce