Approximately $1 billion in Notices of Security Interest (NOSIs) will be eliminated with the introduction of the new legislation presented by the Ontario Government.
NOSI scams have been a growing problem in Ontario. Deceptive lenders and scammers use a loophole in the legal system to tie consumer goods loans to Ontario land titles. Seniors and other vulnerable individuals, in particular, fall victim to these scams.
To help safeguard Ontarians from these schemes, the Ontario government passed a bill preventing lenders from tying consumer goods loans to Ontario land titles.
What Is The Homeowner Protection Act, 2024?
The importance of regulatory intervention to protect consumer rights and financial well-being has never been more apparent. The Homeowner Protection Act, 2024, will eliminate the practice of placing NOSIs for consumer goods loans on the land registry.
Moreover, the bill will apply to both future and existing NOSIs. The proposed legislation will help eliminate $1 billion of NOSI debt, created largely through criminal activity.
| Note The new legislation will not nullify or revoke a business’s security interest in a fixture or contract with the customer. If the consumer defaults on payments, the business can still reclaim the fixture and seek repayment through other channels such as legal recourse through the courts. |
What Are Notices of Security Interest (NOSIs)?
A NOSI is essentially a lien on personal property. It is registered on the property title and is used to prevent the consumer from selling or refinancing their home until the contract is paid out.
Registering a NOSI is generally conducted by businesses that rent, finance, or lease a consumer good to an individual on their property, such as an HVAC system.
For example, if an individual were to lease a furnace installed on their property, the business would register a NOSI on the title to their property to protect their interests (the furnace). The NOSI prevents you from selling or refinancing your property before the end of the contract unless you buy out the contract, which can be very costly.
While NOSIs were intended to help businesses protect their interests, scammers and predatory lenders have been using NOSIs to take advantage of consumers by extorting exorbitant payments to buy out of the contract.
How Do These NOSI Scams Work?
The loophole many predatory lenders abuse and use to take advantage of consumers is the ability to place a NOSI without the homeowners’ knowledge or consent. Or, lenders may place a NOSI significantly larger than the value of the consumer good. For example, a lender may place a $20,000 NOSI on a title for a consumer good valued at $10,000.
This act would bind consumers to the contract and force them to buy out of the contract if they wanted to sell or refinance.
Why Eliminating NOSIs Without A Replacement System May Be Bad News For Some
While the NOSIs ban brings relief to those adversely affected, eliminating it without a replacement system may also hurt borrowers, particularly those with low-income or poor credit. As explained by CLA president Gary Schwartz, “By retroactively eliminating NOSIs without a replacement system, the government is creating chaos for nearly three million Ontario HVAC & Home Improvement Consumers, who could now face a new hit to their credit rating as a direct result of the government’s unprecedented retroactive action.”
When used correctly, the NOSI tool provides businesses with security and the ability to rent, lease, or finance their fixtures (ex: HVAC) to a variety of consumers. However, without NOSI security and no alternative measures for home equipment financing, businesses will likely tighten their credit requirements and up the costs to protect themselves. This will particularly affect subprime consumers due to their limited access to credit.
The effects are similar to how the maximum allowable interest rate reduction from 47% to 35% APR will affect subprime consumers. While this decision was made to help protect Canadians from predatory lenders, it also reduced access to credit for those with subprime credit. In the same sense, this ban, while positive to some, is also a hurdle for low-income Canadians and those with poor credit trying to access financing for expensive consumer goods, like HVAC systems and other appliances.
New Legislation Includes Consumer Protection For Homebuyers
The new legislation will also aim to provide homebuyers and homeowners with additional security when purchasing homes. The legislation includes a 10-day cooling-off period when purchasing a new freehold home. This will give buyers time to review their agreements properly and provide them with the ability to back out of the agreement without penalty.
Similarly, the government of Ontario plans to reinforce consumer protections for condominium communities and people purchasing new freehold homes in the following ways:
- To help promote transparency and shield consumers from unreliable builders, builders must publicly disclose cancellations of new freehold home purchase agreements.
- To combat illegal home building and selling, proposals will be consulted.
- The Condominium Authority Tribunal’s jurisdiction will be expanded to include a wider range of disputes. This will not only help improve condo management but also provide condo owners with solutions that are more accessible.
- The province will help enhance consumer protection for condo owners and buyers by consulting with stakeholders.
Bottom Line
The Homeowner Protection Act, 2024, is a welcomed and significant stride toward safeguarding consumers against predatory practices. By eliminating NOSIs, the government expresses its commitment to protecting homeowners and frees them from approximately $1 billion in NOSI debt. Similarly, the introduction of the 10-day cooling-off period and other safety measures helps empower buyers and fosters transparency and fair practices within the real estate market. That said, an alternative financing framework to replace the NOSI could help businesses and consumers navigate these changes.
