Understanding NOSIs: Addressing Notice of Security Interest Concerns in Ontario

In the complex landscape of property rights and financial transactions, certain legal instruments can significantly impact the interests of various parties in a transaction. One instrument commonly used is the Notice of Security Interest (“NOSI”). This blog will explore what a NOSI is, how it differs from a lien, its use, impacts, registration process, issues surrounding its use, and the proposed solutions by the Ontario Government to address related concerns.

What is a NOSI and what does it apply to?

The Personal Property Security Act (“PPSA”) is a piece of legislation that sets out rules on security interests associated with personal property. When personal property is affixed to real property, it then forms part of the real property and becomes what is known as a “fixture”.

A NOSI is a document registered on the title of the real property that indicates the existence of a security interest in a fixture, usually in cases where the fixture is being leased by the owner or is subject to a rent-to-own arrangement. Common examples of fixtures include furnaces, HVAC systems, or air conditioners installed in homes.

How is a NOSI different from a lien?

A NOSI is registered against the title of the real estate and is often mistaken for a lien, however, it does not grant the holder of the security any interest in the land or any proceeds from its sale. Instead, it is only a notice to potential purchasers and other parties dealing with the real estate that a fixture on said real estate is subject to a security interest. This is different from a lien registered against title to real property which typically grants the lienholder a right to be paid monies from the sale of the land in satisfaction of the debt secured by the lien.

Where is a NOSI registered? How is it registered?

NOSIs are registered in Ontario's Land Registry System through the use of Teraview, a portal used to submit registrations in the province's land records database. The purchase and sale of homes, among other transactions and processes, is evidenced by electronic registration through Teraview. Only authorized users can register NOSIs by submitting a specific form and paying a fee.

Who does a NOSI affect?

NOSIs affect various parties involved in property transactions, including borrowers, lenders, lessees, lessors, purchasers, and mortgagees. Homeowners are particularly impacted when they attempt to sell their homes or attempt to access additional financing if there is an existing NOSI registered on title as potential purchasers and lenders will typically require the discharge of such notices prior to completing transactions with the homeowner.

What issues arise with the issuance of a NOSI?

NOSIs are an avenue by which equipment vendors can ensure that they will be paid for the product that they lease or sell to homeowners. However, unscrupulous parties have used this tool to their advantage by registering NOSIs on title and using them as leverage to demand high fees in exchange for the discharge of the NOSI.

These vendors can do this because homeowners often do not understand the nature of security instruments, and only discover the NOSIs registered against their homes months, if not years after the fact, during home sales or refinancing processes where time is of the essence. As a common example, a homeowner who wishes to sell can be prevented from completing the transaction unless the NOSI is removed from title as purchasers will want to ensure that they obtain clean title without any potential liability attached to the land. The amount that is filed on the title is often times far more than the value of the fixture, and in these scenarios, homeowners are stuck in a difficult situation of needing to pay unreasonable amounts of money to get the NOSIs removed in order to proceed with their transaction.

What are some solutions introduced by the Ministry of Public and Business Service Delivery to address these issues?

In recognition of the issues that the abuse of NOSIs have caused, the Ontario government has released a consultation paper where they presented certain solutions that can be taken in order to address the inappropriate use of NOSIs against Ontario homeowners without their knowledge:

• Clarify "fixtures" to outline what NOSIs can be registered on the Land Registry.
• Limit NOSI duration to prevent indefinite registrations by implementing expiration dates.
• Introduce notice requirements to inform consumers about NOSIs that have been or will be registered.
• Implement notice of assignment to notify consumers about NOSI assignments.
• Limit or eliminate the value field in NOSI registrations.
• Limit the amount demanded by secured parties to release fixtures.
• Limit the requirements to target problematic NOSIs only without impacting businesses unnecessarily.
• Introduce alternative means of discharging NOSIs.
• Limit who can register a NOSI to prevent abuse.
• Add or enhance the available offences to deter misuse of NOSIs.
• Promote increased education about NOSIs for better awareness.
• Require additional information from businesses to ensure the NOSI complies with PPSA requirements. [1]

A proposal to ban NOSIs and allow homeowners to retroactively remove existing NOSIs was brought forth by the Minister of Public and Business Service Delivery in March of 2024 following the consultation in late 2023. It remains to be seen whether the proposed legislation will provide homeowners with robust government protocols to remove NOSIs registered against their homes, but in the meantime, it is essential for prospective buyers and sellers of real estate to keep their eyes open and be wary of the potential implications of contractual arrangements that they enter into, lest they be caught in one of the expensive and complicated NOSI schemes.