Recently, I did two consultations with clients who started probate applications too late. Their loved ones have already passed for more than 6 months. By this time, the banks have already initiated a Power of Sale, meaning they will sell the estate property on the deceased’s behalf.
According to the mortgage contract that the deceased signed, and the Mortgages Act, R.S.O. 1990, CHAPTER M.40, banks have the authority to start the power of sale 15 days after default (breach of the contract). Unfortunately, the property owner’s passing away is also considered a default.
Luckily, most banks will wait 6 months before starting a power of sale, and from then on it takes approximately. 6 months to complete it. So really, your ultimately deadline to receive probate approval is one year from the deceased’s passing.
The problem is that the probate application itself takes the Court 3 months to 1 year to review. This time variance depends on whether you have a Will, the total estate value, and whether there are disputes among the executors and beneficiaries.
Why is the bank in such a rush to start power of sale for estate properties?
There are three main reasons.
- The only person who is on the hook to repay the mortgage has now passed away. Even if there are beneficiaries who will become the new property owners, they are not the ones who signed the mortgage commitment. Hence, they cannot be held liable by the bank to repay the old mortgage. So, the typical way to resolve this is for the beneficiaries to reapply for a new mortgage in their own names (so they can be on the hook to repay it). Then they will use the funds from the new mortgage to pay off the old mortgage. Of course, this can only happen after probate approval.
- Second, the estate funds are limited. The bank can only go after the deceased’s assets, which would only decrease and not increase after their passing. Who knows whether the deceased has enough liquid funds in the bank to repay the outstanding mortgage? Essentially, the bank can only count on the value of the property.
- Third, the value of the property may be depleted very fast. There are several expenses that must be paid before the outstanding mortgage is satisfied, even in a power of sale. Those expenses include property taxes, common expenses, utilities, and repairs. If the estate property is left vacant and unmanaged, it could be damaged and drop in value. So, really, the banks need to move FAST to get the most value from this estate property and ensure the sale proceeds can pay off the outstanding mortgage.
In conclusion, it is best to start the probate application immediately after the deceased’s passing (within a month of the deceased’s passing). This will give the Court time to approve the application. So the executor can receive probate approval before the power of sale starts, and the bank’s interest penalties, broker fees, and legal fees start to accumulate. If your loved one has passed away, please click HERE to book a no-obligation call with a licensed lawyer to discuss next steps.
