Ontario Prohibits Registration of NOSIs

Ontario’s Homeowner Protection Act, 2024 (the “Act”) introduces critical safeguards for homeowners by prohibiting the registration of Notices of Security Interest’s (NOSIs) for consumer goods on their properties.

What is a Notice of Security Interest?

A notice of security interest is a notice that can be registered on title to a property in the land registry system when an individual finances or leases equipment such as a hot water tank, water softener, or air conditioning unit. The security interest is granted by the individual to the company supplying the equipment, which means that the company who rents out the equipment is owed money when the homeowner sells their property or refinances it.

What were the Issues?

There have been instances where an NOSI has been registered on title to a property without the knowledge of the owner. When the owner sells or refinances the property, the buyer will discover the NOSI when its lawyer does a title search on the property. What follows next is often a process between the parties as to who is responsible for discharging or paying out the NOSI on closing.  In some instances, the NOSI amount can be negotiated down, but given the tight timelines of a real estate transaction, managing a negotiation has the homeowner in a frequent disadvantage and the company placing the NOSI has the upper hand and can refuse to negotiate in good faith.

Key Aspects of the Act

1. Prohibition of NOSI Registration:
   • The Act explicitly bans the registration of NOSIs, which lenders have traditionally used to secure interests in a borrower’s personal property. This prohibition is aimed at preventing third parties from staking hidden claims on a homeowner’s property, which could create complications during real estate transactions.
2. Mandatory Transparency in Lending:
   • Under the new law, all security interests must be fully disclosed within mortgage or loan agreements. Lenders are required to provide clear explanations of any claims or interests they hold, ensuring homeowners are fully aware of their obligations.
3. Consumer Protections and Penalties:
   • The Act establishes stringent consumer protection measures. Lenders who attempt to circumvent the prohibition on NOSI registration face significant penalties. Homeowners are given legal avenues to challenge any undisclosed or improperly registered claims against their property.

Utilities Companies and NOSIs

A key motivation behind this legislation is to protect homeowners from unexpected financial shocks related to NOSIs, particularly those filed by utility companies. In some cases, utility companies have registered NOSIs for unpaid bills or to pay out rental equipment such as a hot water tank. Homeowners were often unaware of these registrations until they attempted to sell or refinance their property. On closing day, they might suddenly be faced with a demand to pay off substantial sums—sometimes thousands of dollars—to discharge the NOSI, causing significant financial strain and delaying the real estate transaction.

Imagine a homeowner planning to sell their house, expecting the transaction to be smooth. However, on closing day, they are informed that there is an outstanding NOSI from a utility company for unpaid bills from several years ago or a hot water tank must be paid off and discharged. To finalize the sale, the homeowner must pay off the debt and discharge the NOSI, which could involve substantial legal fees and late payment penalties. These unexpected costs can be financially crippling and cause major disruptions to the sale process.

Conclusion

The Act is a critical piece of legislation designed to end the exploitation of homeowners by prohibiting the registration of NOSIs. By enhancing transparency, enforcing strict consumer protections, and eliminating the risk of unexpected costs on closing day, the Act ensures that Ontario’s homeowners are better protected in the real estate market.

If you are selling your property and would like to know more about NOSI’s, our real estate lawyers are here to help.

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