A mortgage loan is a powerful tool for helping you purchase and buy the home of your dreams -- but it’s also a large financial commitment. When you apply for a mortgage, it’s important to think ahead and ensure that you have the financial capabilities to keep making regular payments, even through changing employment or economic fluctuations.
Of course, it’s impossible to see the future -- despite your best-laid plans, you might run into financial difficulty that you’re not prepared for. Perhaps a market downturn leads to a layoff, a large investment depreciates in value, or a natural disaster necessitates costly home or vehicle repairs. What if you suddenly find yourself unable to make your mortgage payments, despite your best intentions? How can you stop power of sale to keep your property and your mortgage?
What is Power of Sale?
If you are unable to meet your agreed-upon mortgage payments for several consecutive months, your lender has the right to invoke power of sale. Power of sale is similar to foreclosure -- it’s a clause in your mortgage agreement that allows your lender to take possession of the mortgaged property and resell it, in order to recoup the cost of their investment.
For a lender to invoke power of sale, you, the borrower, must have defaulted on at least one payment, though generally a lender won’t invoke the clause until you’ve missed several consecutive payments. At the time that the lender decides to invoke the clause, they must wait at least 15 days after the default to send you a Notice of Sale Under Mortgage. After the Notice of Sale is delivered, you have 35 days -- or up to 40 days if you own the property with a spouse -- to pay back what you owe and bring your payments up to date. If, after this waiting period, you are still unable to pay, the lender can then apply to take possession of the property.
Once they have possession, they can evict you and any other occupants of the property before reselling it.
How is Power of Sale Different From Foreclosure?
Power of sale and foreclosure are very similar -- they’re both legal proceedings, and they both give a lender the opportunity to recoup investment losses by reselling a property. Sometimes, whether a lender chooses to use foreclosure or power of sale simply depends on the province. Foreclosure is most common in BC, Quebec, Nova Scotia, and the prairie provinces. In Ontario, power of sale is more common -- partly because it tends to be a cheaper and more expeditious process.
In foreclosure, the lender takes full ownership of the property -- including its title, and all related liabilities. In power of sale, the lender is able to possess and resell the property, but they do not own the title, and any profits above and beyond the lender’s losses are returned to the borrower at the time the property is sold.
How Can You Stop Power of Sale?
The easiest and most reliable way to stop power of sale is to prevent it from happening in the first place. When you apply for a mortgage, be certain that you can afford the mortgage. Work with a reliable mortgage broker or advisor to set up a financial plan that you can reasonably adhere to, even in the event of an emergency or financial downturn. Make sure you have enough savings to cover the unexpected.
Of course, you can’t always be prepared for everything. Prevention is still a good option even if you know you won’t be able to make your next payment -- before your payment is due, approach your lender or mortgage broker and discuss your options. Power of sale is a lengthy legal proceeding, and as such most lenders will only use it as a last resort, when they feel they have no other options for recouping their losses -- that is, if the borrower is unresponsive or uncooperative. If you can explain that you are going through a rough patch but have a plan in place for getting back on your feet, many lenders and brokers will be happy to work out an alternative plan to help you retain your property.
If all else fails, a second mortgage can provide another source of temporary cash and a way to consolidate debt into a single payment once you are able to return to your regular payment schedule.