Goodbye NOSI, neighbour!
Raise your hand if you own your own home water heater outright? How about your furnace?
If you are renting these units, then you’re among the millions of Ontarians who are. Many of the fixtures that exist within our home, from the ones mentioned above to even some of our large appliances, are unaffordable to simply buy outright. Instead we sign rental contracts, and don’t give it a second thought.
Yet there was a catch. Beyond simply paying rental fees, the vendors of these contracts were placing a financial burden on your home, often without you realizing it. You may not have ever known it was there unless you want to sell your home or refinance later when, surprise, you have a financial burden you weren’t expecting.
These contracts are known as Notices of Security Interest, or NOSI for short. While they started out as a legitimate repayment strategy, in recent years they became a haven for bad actors to take advantage of unsuspecting homeowners. Recently, Sari Rose Law has been fielding a lot of questions from mortgagees about how to handle NOSIs, and whether they should be postponed or discharged before registering a new mortgage on title and advancing funds to a homeowner.
Now it looks like the Provincial government is about to answer the question for us.
What is a Notice of Security Interest (“NOSI”)?
A NOSI functions like a sort of lien on your home (see our dictionary blog on the meaning of “lien”). A homeowner may need a piece of equipment to help maintain the proper functioning of their home like a furnace or water heater but may not be able to afford the piece of equipment upfront. Thus, it often feels like the smart financial move is to rent the equipment, since they do not want to go without equipment necessary to run their home.
This would make sense in a dollar-for-dollar transaction, provided that the equipment is priced fairly. If you have $1,000 remaining owing on a rental contract that you signed, you are using the equipment, and that vendor is entitled to recoup their $1,000. However, opportunists quickly saw the loophole in these contracts, and noticed that they can take advantage of unsuspecting buyers.
When these opportunists realized the potential for abuse, they began to offer contracts to unsuspecting buyers that were worth upwards of two to even five times the value of the equipment. Then, the companies register the lien on title to your property at the inflated amount, which you agreed to pay. With that lien on title, it ensures that the companies still get paid even if you stop paying rent or go to refinance your property. In order to be sure they will get paid for the increased amount even if you stop paying the monthly rent when you go to sell or refinance your property.
Whose interests come first?
The question that we often get from lenders is what happens when a NOSI is on title, whose interests come first? If a NOSI is on title before registering your interest as a lender, then the NOSI will take priority. You as the lender then need to decide how you want to position yourself - do you wish to have the NOSI postponed, or would you rather the NOSI be discharged completely by having the borrower pay it out in full.
Suppose the property in question is under a Power of Sale, and had previously been owned by older residents who had fallen victim to a NOSI scheme. The property not only has sizable debts from those contracts, but the equipment involved in the NOSI is installed in the home, and may even be imperative in keeping it functional. Who is then responsible for those payments?
If you are seeking to sell the home under Power of Sale, you are left with the challenge of crucial fixtures and bloated rental contracts with tenants no longer involved in making those payments. What happens if those contracts are 6 months in arrears, who will sort out the messes involved in those contracts? Ordinarily the buyer may take over the contracts, but what happens if those contracts were scams in the first place or the value of the property is less than the mortgages on title and the company refuses to remove them and they can’t be paid out?
Previously it made sense to postpone them when the market was stable and predictable but at this specific time it may be smarter to pay them out and discharge them. However, an upcoming change to Ontario law may create a whole new set of circumstances.
How the law may be changing?
Now, the Ontario government has listened to public pressure from lawyers and homeowners, and is cracking down. In March, the Ministry of Public and Business announced that it would soon be introducing legislation to make NOSIs illegal not just going forward, but retroactively as well.
According to the Minister, it was impossible to determine through the land registry which NOSIs were legitimate, and which were being used criminally. CBC reported that their Marketplace investigation in 2023 found instances of vulnerable seniors falling victim to NOSI fraud, with some owing over $100,000 combined on multiple NOSIs against items as simple as their video doorbell camera.
The law would also remove all existing NOSIs that are registered on homes. Previously, homeowners might have had to take a ‘wait and see’ approach to determine whether they had these debts registered against their home. If they only found out hours or days before a sale closed, they would be backed into a corner, and often felt forced to pay.
Keeping Ontario Homeowners Safe
While any homeowner could fall victim to a NOSI scheme, older adults had been especially vulnerable. These homeowners were pressured to sign contracts that they barely had time to read, let alone understand. They were promised that they would come out ahead, not realizing that they were actually signing on for an unfair debt. Only when they or their family proceeded to try and sell the home did they learn what had happened.
Needless to say, the removal of NOSIs would be a very good thing for Ontario homeowners. Hopefully if this legislation does pass through, lenders and homeowners will not have to worry about selling houses subject to legal scams increasing homeowners debt responsibilities. A retroactive ban would ideally eliminate those pesky complications completely, with no questions asked.
At Sari Rose Law, we work to keep up with all of the latest news from the world of real estate law, and we would be pleased to help answer your questions. If you need an NOSI postponed or discharged before the law changes, then we can help do that, too. Contact us today to set up a consultation.