If you stop paying your mortgage during an Ontario divorce, the bank’s power of sale completely supersedes any family court orders for exclusive possession. The lender will sell the home to recover their money, and any leftover equity is typically held in a lawyer’s trust account until your final equalization is settled.
Going through a separation is incredibly stressful, and financial strains often lead to missed mortgage payments. In Ontario, when a mortgage goes into default, lenders rarely use traditional foreclosure; instead, they rely on a process called “power of sale.” This legal mechanism allows the bank to evict the occupants and sell the matrimonial home to recover the outstanding debt.
Many separating spouses mistakenly believe that if they have a court order from the Superior Court of Justice granting them “exclusive possession” of the matrimonial home, they are protected from eviction. Unfortunately, this is not the case. ⚠️ Family law rights do not trump the contractual rights of a secured creditor. If the mortgage is not paid, the bank has the absolute right to take back the property, completely bypassing your family law disputes.
Step-by-Step Process in Ontario: When the Bank Steps In
Whether you live in Toronto, Mississauga, or Ottawa, the rules surrounding a power of sale remain consistent across the province under the Mortgages Act. Understanding this process is critical to protecting whatever equity remains in your home. The situation generally unfolds in the following steps.
Step 1: Default and the Notice of Sale
The process begins once the mortgage is in default for at least 15 days. At this point, the lender will issue a “Notice of Sale Under Mortgage” to everyone listed on the title, as well as any spouse who has matrimonial home rights. 📬 You usually have a 35-day redemption period to pay the mortgage arrears (the missed payments) plus the bank’s legal fees. If you or your ex-partner can gather the funds to bring the mortgage into good standing, the power of sale process halts.
Step 2: Eviction and Loss of Exclusive Possession
If the 35-day period expires without payment, the bank will issue a Statement of Claim for debt and possession. Even if a family court judge has ordered that you have exclusive possession of the home, the bank’s mortgage overrides this. The lender will obtain a writ of possession from the court and enlist the local Sheriff to evict anyone living in the house. You cannot use your ongoing divorce proceedings as a defence to stop the eviction.
Step 3: Selling the Property on the Open Market
Once the bank has vacant possession, they will hire a real estate agent to list the property. The lender has a legal duty to sell the home at fair market value, but they are highly motivated to sell quickly. 🏡 The home is usually sold “as is,” and the bank will not invest in repairs or staging, which means the final sale price might be lower than what you could have achieved if you and your ex-partner sold it cooperatively.
Step 4: Distributing the Remaining Equity
After the sale closes, the bank will pay off the outstanding mortgage balance, property taxes, real estate commissions, and their own legal fees. If there are leftover funds (surplus equity), the bank cannot simply hand a cheque to one spouse. Because it is a matrimonial home, the remaining money is typically paid into the Superior Court of Justice or held in a joint trust account by your family lawyers until you finalize your equalization and property division agreement.
How Much Does it Cost in Ontario?
Allowing a home to go into power of sale during a divorce is incredibly expensive and will drastically reduce the equity you have left to divide. You must be prepared for the following costs:
- Bank’s Legal Fees: Typically between $3,000 CAD and $7,000 CAD, which are added directly to your mortgage balance.
- Court Filing Fees: If you are filing applications at the Superior Court of Justice to deal with the fallout, the filing fee for a family law Application is $214 CAD (with an additional $445 CAD due later to place the case on the hearing list, for a total of $659 CAD, or $669 CAD if a divorce is also requested).
- Family Lawyer Fees: Local family lawyers usually charge between $300 and $650 CAD per hour to negotiate the holding of trust funds and finalize your separation agreement.
- Penalty Fees: Most lenders charge steep administrative penalties and higher interest rates once a mortgage falls into default.
How Long Does the Process Take?
In Ontario, the power of sale timeline is relatively swift compared to a standard divorce. A bank can legally take possession and list the home within 3 to 4 months of the first missed payment. Conversely, resolving your property division and securing a finalized divorce through the Ontario courts can easily take 12 to 18 months or longer, especially if the matter is heavily contested. This difference in timelines is exactly why the bank will act long before your family law case is resolved.
| Situation | Your Legal Rights | Outcome |
|---|---|---|
| Exclusive Possession Order | Protects you from your spouse evicting you. | Does not protect you from the bank. |
| Power of Sale | Right to pay arrears within 35 days. | Bank sells home, equity goes into lawyer trust. |
| Equalization Process | Right to 50% of the net family property growth. | Settled in family court AFTER the bank is paid. |
Frequently Asked Questions (FAQ)
Can a family court judge stop the bank’s power of sale?
Generally, no. The Superior Court of Justice family branch handles disputes between spouses, not secured creditors. The bank’s contract (the mortgage) gives them the right to sell the property if payments stop, regardless of your divorce proceedings.
What happens to the leftover money from the sale?
The bank will deduct the mortgage principal, interest, legal costs, and real estate fees. The remaining equity is usually deposited into your family lawyers’ joint trust account. It will stay frozen there until you and your ex-partner sign a valid separation agreement detailing how to divide it.
Can I buy the house from the bank to stop the sale?
If you have the financial means, you may be able to secure a new mortgage solely in your name to buy out the property or pay off the arrears during the redemption period. You should consult a local real estate lawyer to explore this option immediately.
Will a power of sale ruin my credit?
Yes. If both spouses are on the mortgage, a default and subsequent power of sale will severely damage both of your credit scores, making it very difficult to secure a lease or a new mortgage post-divorce.
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