Proposed Ban of Notice of Security Interests

By Puneet Shroff

What is a Notice of Security Interest (“NOSI”)?

A Notice of Security Interest, or NOSI, is a legal instrument that allows vendors to register claims against a property's title when homeowners purchase or lease certain equipment, such as furnaces, water heaters or air conditioners, often without the homeowner's full understanding or agreement. These claims are a form of debt that homeowners must repay upon selling or refinancing their property.

The purpose of a Notice of Security Interest (NOSI) is to serve as a notification to anyone with an existing or future interest in the property that a specific fixture on the property is encumbered by a security interest. Consequently, a NOSI is formally recorded in the Land Registry System. Once a NOSI is registered, it signifies that in the event of the borrower or lessee defaulting on the associated loan or lease payments, the lender or lessor holding priority can lawfully take possession of and sell the fixture to recoup the outstanding debt, within specified legal parameters.

Many homeowners only discover the existence of a NOSI registered against their property when they attempt to sell or refinance. By this time, the NOSI may have been assigned to a third-party lender who claims that they are an innocent purchaser for value. This can leave homeowners in a difficult position, facing the possibility of defaulting on loans or even losing their homes.

Unfortunately, the registration of NOSIs against homeowners' titles has led to increasing instances of abuse. Unscrupulous vendors have been known to use NOSIs to leverage homeowners into paying exorbitant fees, often targeting elderly homeowners who are socially isolated and of limited financial means.

NOSIs have also been linked to cases of mortgage fraud. Fraudsters often approach older homeowners with promises of free renovations or rebates if they sign certain documents. These documents often turn out to be loan and mortgage contracts, leading to unfair terms and high-interest rates.

While the Ontario government has taken steps to regulate the door-to-door sale of certain products, these measures have proven insufficient in dealing with the problems caused by NOSIs. Homeowners affected by NOSIs often struggle to navigate complex legislation, and consumer protection measures often come too late to provide effective relief.

Proposed Ban of NOSIs

In response to the growing problem of NOSI abuse, several petitions have called on the Ontario government to ban NOSIs and remove them from the residential property registration system retroactively. These petitions have been backed by members of the Ontario Real Estate Bar, Real Estate Agents, and Brokers, all of whom are calling for legislative action to protect homeowners.

The Ontario government has acknowledged the problems caused by NOSIs and has taken steps to address them. In 2023, the government launched consultations on ways to reduce harmful and inappropriate uses of NOSIs. These consultations considered potential measures such as notifying homeowners when a NOSI is registered and limiting the types of goods or fixtures for which a NOSI can be registered.

Following these consultations, legislation has been proposed to ban NOSIs and to give homeowners the ability to have them removed. This legislation, if passed, would prevent NOSIs from being registered against a homeowner by a business when it finances or leases certain equipment.

The proposed ban on NOSIs promises to have a significant impact on homeowners. By preventing the registration of NOSIs, homeowners will no longer be at risk of finding themselves burdened with unexpected debts when they attempt to sell or refinance their homes. HVAC and renovation companies can instead rely on Small Claims Court or litigate under the Construction Act to recover any monies owed. Further, it will force these companies to conduct more due diligence about the customer’s credit before leasing or financing equipment.

The proposed ban on NOSIs has been met with widespread approval, with many applauding the government's proactive approach to protecting homeowners. However, more needs to be done to ensure that homeowners are fully protected from scams and fraud. As the issue continues to evolve, it will be crucial for the government, real estate professionals, and homeowners to work together to find effective solutions and provide the necessary support and resources for affected individuals.

Please contact Puneet Shroff (pshroff@sorbaralaw.com) if you require assistance with a Notice of Security Interest registered against your property.