What happens to existing mortgages after a tax sale?
Mortgages that are registered against a property before a tax sale can be broken down
into two categories: those that will affect the property after a tax sale, and those that
will not affect the property after the tax sale. Here's a description of mortgages in each
category.
Mortgages that will affect a property after a tax sale
When a property is sold at tax sale, any mortgages on it are eliminated, except for mortgages
in favour of the "Crown". The "Crown" meaning the government of Ontario or the
government of Canada, or one of their agencies or crown corporations.
For example, the Business Development Bank is a Crown corporation. Therefore,
a mortgage in favour of Business Development Bank is a mortgage in favour of the
Crown. Please note that a Business Development Bank mortgage is just one example
of a mortgage in favour of the Crown; there are many others.
If you buy a tax sale property that is subject to a mortgage in favour of the Crown, and
you do not pay the Crown the money that is owing on the mortgage, the Crown could
foreclose or sell the property under power of sale. Thus, you could lose the property that
you just bought.
Please note that you cannot include money to pay off existing mortgages in your tender
or bid. The money from your tender or bid cannot be applied to any mortgages.
Mortgages that will not affect the property after a tax sale
Any mortgage that is not in favour of the Crown will no longer affect the property after a
tax sale. For example, if there is a mortgage in favour of the Bank of Montreal, it will not
affect the property after a tax sale. The person or company who holds the mortgage will
have no further claim against the property after the tax sale.
At least ten months before a property is advertised for tax sale, everyone who holds a
mortgage on that property is sent a notice that the property is in tax arrears and that a
tax sale will result if the taxes are not paid. At least three months before the tax sale
they are sent a final warning. Thus, anyone who holds a mortgage is given ample opportunity
to pay the taxes and thereby avoid a tax sale.
How can I find out if any mortgages will affect a specific
property after a tax sale?
In order to find out if there are any Crown interests in a property it is necessary to obtain
an up-to-date title search and execution search. The search must then be analyzed to
see if there are any mortgages or other interests in favour of the Crown.
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