When the Payments Stop: A Private Lender’s Guide to Power of Sale

You entered the private lending market for the returns, not for the thrill of litigation. But let’s be honest: in this market, default is no longer an "if," it’s a "when."

When a borrower misses a payment, the clock starts ticking—not just on their mortgage, but on your ROI. Every day you delay enforcement is a day your equity cushion erodes.

As a lawyer acting for private lenders, I often see clients wait too long. They trust the borrower’s promises ("I’m refinancing next week!") or fear the legal costs of enforcement. But in Ontario, the Power of Sale process is designed to be efficient—provided you don't hesitate.

Here is generally how the process works and why speed is your best asset.

1. The Trigger: Default and The Demand

Technically, a mortgage is in default the moment a payment is missed or a covenant (like insurance coverage) is breached.

While institutional banks might wait months, private lenders rarely have that luxury. Generally speaking, once a default has occurred and continued for at least 15 days (depending on your specific mortgage terms), we can issue a Notice of Sale under Mortgage.

This is not just a polite reminder. It is the formal legal document that starts the statutory clock.

2. The 35-Day Redemption Period

Once the Notice of Sale is issued and served, the borrower has a "redemption period"—typically 35 days—to bring the mortgage into good standing.

During this window, my role is to stand firm. The borrower may try to pay partial amounts to "buy time." I advise my clients to be very careful here; accepting partial payment without a proper forbearance agreement can sometimes reset your enforcement clock.

If they pay everything (arrears, interest, and legal costs), great. You are back in business. If not, we move to the next phase.

3. Taking Possession: The Litigation Step

This is where many lenders get confused, issuing a Notice of Sale gives you the right to sell the property eventually, but it doesn't automatically give you the right to enter the property or kick the occupants out.

If the property is tenanted or owner-occupied, we often need to issue a Statement of Claim for possession.

This is a lawsuit. The borrower has a chance to defend themselves. However, if there is no genuine defense (and "I don't have the money" is not a legal defense), we move for Summary Judgment or a Default Judgment to obtain a Writ of Possession. This is the document that authorizes the Sheriff to enforce the eviction.

4. Selling the Property: Your Duty of Care

Once we have possession, you are effectively the seller. But you are not a standard home seller.

Under the Mortgages Act, you have a duty to sell the property for "fair market value." You cannot simply sell it to your brother-in-law for half price to recoup your loan quickly. Doing so opens you up to a lawsuit from the borrower (or subsequent lenders) for the lost equity.

I help my clients navigate this by ensuring we have proper appraisals and that the property is listed on the open market (MLS), creating a paper trail that proves we acted reasonably.

Key Takeaway

Real estate enforcement is a race against time. Taxes, utilities, and prior mortgages don't stop accruing interest just because your borrower stopped paying.

My strategy for private lenders is simple: Be diligent in the paperwork and aggressive on the timeline. You can always grant an extension if you choose to, but you can never get back lost time if you didn't start the clock.

Disclaimer: This content is for informational purposes only and does not constitute legal advice or a solicitor-client relationship. The timelines and procedures mentioned are based on general Ontario procedures and may vary depending on the specific terms of your mortgage charge.