What happens when your landlord misses mortgage payments?

Kelly Ho, a certified financial planner at DLD Financial Group, said renters need to consult their provincial tenants act. In many provinces the new owner or the bank is required to continue the tenant agreement if the lease term hasn’t ended, but that may not be true for all jurisdictions, she said. “It’s really important for the tenant to know their rights and continue acting in good faith and making sure they don’t let anything slip and that everything’s documented,” Ho said.

Tenants face uncertainty when landlords fall behind

Douglas Kwan, a lawyer and director of advocacy and legal services at the Advocacy Centre for Tenants Ontario, said he has seen more queries from tenants about power of sale situations—when a property is put up for sale by a bank—over the last eight months. He said that’s partly because market rents have dipped while many homeowners face mortgage renewals at higher interest rates, so rental property owners can fall behind more easily.

But tenants often get stuck in the middle, Kwan said. He often comes across cases where a landlord bullies a tenant to try to save the property, or stops responding to the tenant after receiving a notice from the bank. “The concerns are just this period of uneasiness where they don’t know where they stand,” Kwan said. 

Check with your landlord and find out what’s going on when you receive a letter indicating the power of sale of a property, said Gathya Manoharan, a litigation associate with Nava Wilson LLP in Toronto. 

Mostly, there’s not much you need to do unless the lender has asked you specifically to do certain things, she said. For example, a lender could ask the tenant to pay rent directly to them, instead of paying the landlord. “That’s something you should comply with because that is the right of the lender,” she said. 

Tenants keep their rights during a power of sale

When a power of sale is initiated in Ontario, the lender effectively becomes the landlord, Manoharan said. “They essentially step into the shoes of the landlord, so any responsibilities that a landlord normally has, the lender now has,” she said.

Sometimes, a lender may make it seem like the tenant has to vacate the property, Manoharan said. But that’s not really the case. In Ontario, for example, if the lease term hasn’t ended yet, the tenant has the right to stay at the property even when ownership changes hands, she said. “So long as you’re paying your rent on time, you are fulfilling your obligations under the lease, you’re allowed to stay,” Manoharan said.

In Ontario, a lender putting the property up for sale is required to follow the same protocol as a landlord would. That means providing 60 days’ notice and offering a month’s rent in compensation for breaking the lease, Manoharan said.

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Provincial rules shape tenants’ rights during a sale

But the sale of a home doesn’t automatically allow the new owner to terminate the rental lease, she said. The new owner can only terminate the existing lease if they or their immediate family are choosing to live in that property for at least one year. 

But that may not be the case in British Columbia. In that province, the contract between a bank and a homeowner takes precedence over a tenant’s lease, which means both the landlord and the tenant must abide by any court orders. “If the court orders that the property goes back to the lender, the tenancy just ends immediately upon that order,” said Robert Patterson, a lawyer with the Tenant Resource and Advisory Centre in B.C.

That leaves tenants with fewer options. Patterson said it’s vital for tenants to pay attention to legal proceedings and know what the timeline looks like, which could mean vacating the property on incredibly short notice.  

Foreclosures are another avenue a lender can take, filing a claim with the court when a homeowner defaults on payments. A court may order the sale of the home. “Honestly, in British Columbia, foreclosure is one of the worst ways that a tenancy can end,” he said.  

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