If your landlord defaults on their mortgage in Ontario, you do not lose your home. Under the Residential Tenancies Act, tenants have “security of tenure.” The bank or an appointed receiver simply steps in as your new landlord. You continue paying your regular rent to them, and you cannot be evicted solely because the property is under a power of sale.
Renting a home in Ontario cities like Brampton, London, or Hamilton has become increasingly expensive, and for many tenants, discovering that their landlord is facing severe financial trouble is a terrifying experience. When a property owner fails to make their mortgage payments, the lending bank will eventually initiate a legal process known as a “Power of Sale” or foreclosure to seize the property and sell it to recover their funds. Often, the first sign of this is a formal legal notice taped to the tenant’s door from a law firm or a court-appointed receiver.
It is crucial for tenants to understand that a landlord’s financial failure does not erase a tenant’s legal rights. ✅ The Mortgages Act and the Residential Tenancies Act (RTA) work together to protect you. The bank or receiver legally assumes the role of the landlord, inheriting your lease exactly as it is written. You cannot be locked out, your rent cannot be arbitrarily raised, and you are not required to pack your bags immediately. However, you must know exactly how to handle rent payments and what to expect when the bank finally sells the house to a new owner.
Step-by-Step Process for Tenants During a Power of Sale
Navigating a power of sale requires staying calm and ensuring your rent payments go to the right place. Here is the generally accepted process for Ontario tenants when the bank takes over the property.
Step 1: Read the Notice of Attornment
When the bank decides to take possession of the property, they will serve you with a legal document, often called a “Notice of Attornment of Rents.” 📋 This document officially informs you that your original landlord has defaulted and that you are now legally required to pay your rent directly to the bank’s lawyer or a court-appointed receiver. Do not ignore this document, and do not continue paying your old landlord, as they are no longer legally entitled to collect your rent.
Step 2: Verify the Receiver’s Identity
Before redirecting your rent cheque, it is wise to verify the documentation. Scams exist where fraudsters pretend to be a bank taking over a property. You can easily verify the situation by calling the law firm or the receivership company listed on the notice (using a phone number you look up independently). Once you confirm it is legitimate, begin sending your monthly rent to the new entity on your regular rent day.
Step 3: Handle Showing Requests Professionally
Because the bank wants to recover its money, they will list the property for sale on the open market. 🔑 Real estate agents will want to show the unit to prospective buyers. Under the RTA, the bank has the right to show the unit, provided they give you 24 hours’ written notice and schedule the showings between 8:00 AM and 8:00 PM. You do not have to leave the apartment during these showings, but you cannot legally block the agent from entering if proper notice was served.
Step 4: Understand the N12 Eviction Process
You cannot be evicted just because the house is being sold. However, if a new buyer purchases the home from the bank and genuinely intends to move into your unit, the bank (or the new buyer) can serve you with an N12 Form (Notice to End your Tenancy Because the Landlord, a Purchaser or a Family Member Requires the Rental Unit). This form requires at least 60 days’ notice and one month’s rent as financial compensation. If you disagree with the notice, you have the right to wait for a Landlord and Tenant Board (LTB) hearing.
How Much Does it Cost in Ontario?
The beauty of tenant protections in Ontario is that a landlord’s bankruptcy should not cost the tenant extra money. 💰 Here is a look at the financial realities during a power of sale:
- Rent Adjustments: Your rent stays exactly the same. The bank cannot increase your rent beyond the standard Ontario rent control guideline without an LTB order.
- Last Month’s Rent Deposit: Your original landlord is legally required to transfer your Last Month’s Rent (LMR) deposit to the bank. Even if your old landlord stole it, the LTB generally holds the new owner/bank responsible for honouring your deposit.
- Legal Advice: If you feel threatened by the bank or the receiver, consulting with a community legal clinic is usually free for low-income tenants, or a private paralegal may charge $150 CAD to $300 CAD for a consultation.
- Eviction Compensation: If you are eventually served an N12 by the purchaser, you are legally entitled to receive one month’s rent in compensation by the termination date on the notice.
How Long Does the Process Take?
A power of sale is a lengthy legal process. From the moment the landlord stops paying their mortgage, it can take 3 to 6 months before you receive the Notice of Attornment. Once the bank lists the property, it may take several months to find a buyer. If the new buyer wants to move in, they must provide a minimum of 60 days’ notice via the N12 form. If you refuse to leave and wait for an LTB hearing, you could remain in the unit for an additional 4 to 8 months while waiting for your court date.
Who is Responsible for What?
| Responsibility | Previous Landlord | The Bank / Receiver |
|---|---|---|
| Collecting Rent | No longer legally allowed. | Collects all future rent payments. |
| Maintenance & Repairs | No longer involved. | Legally obligated to fix broken appliances and maintain the property. |
| Last Month’s Rent Deposit | Must surrender it to the bank. | Must honour the deposit when you finally move out. |
Frequently Asked Questions (FAQ)
Do I have to sign a new lease with the bank?
No. Your current lease remains 100% valid under the RTA. The bank inherits all the terms, conditions, and rent amounts of your original tenancy agreement. You do not have to sign anything new.
Can the bank just change the locks on me?
Absolutely not. The bank must follow the exact same eviction rules as any other landlord in Ontario. Changing the locks without an order from the Landlord and Tenant Board (LTB) is an illegal lockout and a severe provincial offence.
What if my old landlord demands the rent?
Once you receive a formal Notice of Attornment from the bank or their lawyer, you must pay the bank. Inform your old landlord that you have been legally instructed to redirect the funds. If you pay the old landlord, the bank can still sue you for unpaid rent.
What if the house needs urgent repairs during the sale?
The receiver or the bank is now your landlord. If the furnace breaks or a pipe bursts, you must contact the property management company appointed by the bank. They are legally required to maintain the unit to municipal property standards.
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