One thing that we pride ourselves on at Mortgage Broker Store is our ability to deal with difficult power of sale and foreclosure situations. Since we are generally well known for this expertise, we get a lot of calls related to legal issues with mortgages. This specialization gives us a general idea into the state of mortgages in Ontario. We’ve looked through our website statistics and the number of inquiries we’ve gotten and have come to some general conclusions.
Firstly, since the end of March 2020, the number of mortgages we’ve arranged with the goal of stopping a power of sale has been reduced by about 70%. We believe this is due in large part to the government’s mortgage deferral plan implemented around the same time. When speaking with different industry people, such as lawyers and property managers, they also let us know that their bosses asked them to stop work-related to evictions. This would mean that even people who didn’t explicitly defer their mortgage would have their evictions delayed significantly.
During Friday of last week, we got multiple emails and phone calls from people who had received a nearly identical letter from their lender. The letter was basically a warning that the lender’s law firm would shortly proceed with power of sale. This letter frightened a lot of people who thought they were in power of sale. Technically a power of sale is started with a Notice of Sale document, so while these people were in financial trouble, they were not yet in power of sale.
During our entire mortgage career, we have never received multiple similar phone calls in a single day, making this an unprecedented occurrence. We’ve gone ahead and recreated one of these documents while stripping away all personally identifiable info. Ron Alphonso has also created a short video explaining the document. Both the sample document and video can be seen below.
The common date mentioned during the borrower’s conversations with their lenders was Sept 11th. This was the date that the lenders stated they were going to proceed with power of sale and most likely send a Notice of Sale document. The language used in the warning letter seems pretty understanding, and we’d assume that the banks are going to be more lenient than usual when it comes to dealing with people impacted by COVID-19. One thing we recommend that all our clients do is not to avoid the lenders and to consider (not necessarily accept) any solutions that they propose.
We liken the stop eviction order to a big water dam. These power of sale and foreclosure processes need to be dealt with sooner or later, and the pressure is building. Delaying these processes for three months during normal times would result in a considerable backlog. Before COVID-19 the Canada wide mortgage default rate stood at roughly 0.2%. Earlier predictions from the bank of Canada state that the default rate could increase 300%.
One thing we are assuming is that any measures to process all the built-up legal actions must be done slowly. The courtrooms in Ontario get pretty busy on a typical day before COVID-19, so they’d likely be overwhelmed at four times the amount of work. The Ontario government is trying to mitigate this by encouraging people to file their court documents online. The various websites for the Ontario courts were also recently revamped with new features making them far easier to use than they were previously. We’d also assume that there would be some sort of limit on the number of evictions each month. Flooding the market with power of sale properties would likely have too much of a negative impact on Canada’s housing market. Also, I am not sure if there is enough staff at the local sheriff offices to process so many evictions at once.
A lot of this is speculative based on the information at hand, but we won’t need to wait long to see how this all plays out. A lot of people who get Notice of Sale documents decide to sell their home on their own shortly after. Selling can be a smart move in cases where getting a new mortgage isn’t possible. So a sudden increase in property listings can serve as a hint to what is going on. We’d expect that most current legal actions will be processed mid-2021, so we will probably have to wait until then to get the full picture.