If you fall behind on your mortgage in Ontario, your lender has two main legal remedies to recover the debt: power of sale and foreclosure. These terms are often used interchangeably, but they are not the same. Both remedies result in your home being repossessed and sold, but the process and outcome differ significantly. It’s important for property owners to understand these differences, because they affect how quickly you could lose your home, what happens to any equity you have, and whether you might still owe money afterward.
What is Power of Sale in Ontario?
Power of sale is the most common method used in Ontario when a homeowner defaults on their mortgage. In a power of sale, the lender (mortgagee) does not take ownership of the property outright – instead, the lender gains the legal right to evict the occupants and sell the property to recover the outstanding mortgage balance. This process is generally faster and cheaper for the lender than foreclosure, which is why lenders prefer it in Ontario. In fact, Ontario law provides lenders a statutory power of sale (often built into mortgage agreements), making it the primary remedy for default in the province.
Under a typical power of sale process, if you miss a mortgage payment the lender can issue a Notice of Sale after a short waiting period (as little as 15 days after the missed payment). This notice starts a redemption period (usually about 35 – 45 days in Ontario) during which you have the right to pay back the overdue amounts and stop the sale. If you catch up on payments in time, the process ends. If not, the lender can proceed with legal steps to take possession for the purpose of sale. This involves obtaining a court order (often a judgment and a Writ of Possession) that allows the lender to have you evicted by the sheriff and then sell the home on the open market.
One crucial aspect of power of sale is that the homeowner retains ownership until the property is sold. The lender’s role is only to facilitate the sale. Because of this, the lender has a legal duty to sell the property for a fair market value – they cannot just unload it for a cheap price. After the sale, the proceeds are used to pay off the remaining mortgage debt, and any extra money (equity) goes back to the homeowner. (If the lender sells below market value and that causes you to lose equity, you could even take legal action against the lender for the loss).
On the other hand, if the sale doesn’t raise enough money to cover what you owe, the lender can typically sue you for the shortfall (the remaining unpaid debt) – that shortfall becomes an unsecured debt you still owe the lender. In summary, with a power of sale the homeowner’s equity is protected, but the homeowner also remains liable for any deficiency after the sale.
What is Foreclosure in Ontario?
Foreclosure is a different legal process where the lender goes through the court to take title (ownership) of the property from the borrower. In a foreclosure, the lender eventually becomes the full owner of the home – the title is transferred to the lender by court order, and the borrower’s rights in the property are completely extinguished. Once the lender has ownership, they can do whatever they want with the property (sell it, rent it out, etc.) as it is now theirs.
Foreclosures are rarely used in Ontario because they are lengthy, complex, and expensive. The process involves filing a lawsuit against the borrower and going through multiple court proceedings. Typically, a lender won’t even consider foreclosure unless the borrower has been in default for several months (e.g. 3 – 6 months of missed payments).
The court may issue a Notice of Intention to Redeem or set a redemption period in a foreclosure as well, which can be around 30 – 60 days and sometimes extendable by the court. If the borrower still cannot pay the arrears or refinance in that time, the court can grant a final order of foreclosure, which transfers the property’s title to the lender. From that point, the homeowner is no longer the owner and has no further claim to the property or its value.
The financial outcome of a foreclosure is very different from a power of sale. Because the lender takes ownership, any equity in the property effectively goes to the lender. If the lender later sells the house for more than the mortgage balance, the lender keeps all the profit – the former homeowner does not get any of that money. (Lenders are also not under the same obligation to get top dollar as they are in a power of sale, since it’s now their property.)
On the flip side, if the property is sold and doesn’t make enough to cover the debt, the borrower is off the hook for the shortfall. In Ontario, the debt is considered paid (satisfied) by the foreclosure. The lender cannot sue the borrower for any deficiency after a foreclosure – they must absorb that loss. Essentially, with foreclosure the borrower loses the home and any equity, but gains the benefit of being free from the mortgage debt (no remaining liability if the house wasn’t worth the full amount of the loan).
Foreclosure proceedings also take much longer to complete. A foreclosure can easily take 6 months to a year (or more) from start to finish, whereas a power of sale might be wrapped up in a few months. This extended timeline and heavy court involvement make foreclosure impractical in most cases, which is why it’s usually considered a last resort for lenders in Ontario.
Key Differences Between Power of Sale and Foreclosure
Both power of sale and foreclosure will result in the sale of the property, but there are key differences every homeowner should know:
In a foreclosure, the lender ultimately obtains legal title to the property (the lender becomes the owner). In a power of sale, the lender never takes title – ownership stays with the homeowner until the home is sold to a new buyer. This means foreclosure completely cuts off the borrower’s ownership, whereas power of sale does not transfer ownership (it only gives the lender authority to sell).
Power of sale is generally much faster. A lender can begin power of sale proceedings as soon as 15 days after the first missed payment in Ontario. By contrast, foreclosure is slower – it usually isn’t started until several months of missed payments have accumulated, and then the foreclosure itself can take many additional months (often 6 – 12 months total) to complete. For the homeowner, this means power of sale provides less time to resolve the default before the house is sold, whereas foreclosure tends to drag on longer (potentially giving more time, but also prolonging uncertainty).
Power of sale is a primarily private process. Aside from obtaining certain legal documents (like a court order for eviction), the procedure doesn’t require full court supervision – the lender can exercise the power of sale pursuant to the mortgage terms and provincial law without a judge managing the sale. Foreclosure, on the other hand, is a judicial process start to finish. The lender must file a lawsuit, and the entire process (from issuing demands to transferring title) is overseen by the courts. This difference influences the time and cost: foreclosures involve more legal steps and court hearings, making them more complex and expensive than power of sale.
Both processes give the homeowner a window of time to “redeem” the mortgage (by paying the arrears or the full balance) and stop the loss of the home, but the length differs. In a power of sale, the redemption period is short – typically around 35 – 40 days after the Notice of Sale is issued.
In a foreclosure, the redemption period is often set by the court and can be longer – commonly 30 days in initial orders, but judges can extend it (in some cases 60 days or more) depending on circumstances. Practically, this means foreclosure might offer a bit more time for a homeowner to try to catch up or refinance before final loss of the home, whereas power of sale moves more quickly to sale if not cured promptly.
In a power of sale, the lender is obligated to sell the property for a fair market price and after the sale, any equity (profit beyond what’s owed on the mortgage and costs) must be paid to the homeowner. The lender only keeps the amount needed to cover the debt and expenses. In a foreclosure, since the lender becomes the owner, the lender keeps all the proceeds from any later sale. The former homeowner loses any equity in the property and is not entitled to any surplus from the sale. In short, with power of sale you can still benefit from any remaining value in your property (after debts), whereas with foreclosure you forfeit your equity to the lender.
If the sale of the property doesn’t fully cover the outstanding mortgage balance and costs, the treatment of the shortfall (deficiency) differs. Under power of sale, the lender can pursue the borrower for the shortfall – the remaining unpaid amount becomes an unsecured debt that the borrower still owes.
The lender could take legal action to collect that money from the borrower’s other assets or income. Under foreclosure, however, once the property is taken by the lender, the debt is considered paid by the value of the property – the lender cannot sue for any shortfall. The borrower is essentially freed from the remaining mortgage debt (though, as noted, they also lose the home and any equity in it). This means power of sale could leave you with a debt to pay after losing your home, whereas foreclosure wipes out the mortgage debt but at the cost of losing all rights to the property.
Why Power of Sale is More Common in Ontario
In Ontario (and some other Canadian provinces), lenders almost always opt for power of sale over foreclosure as the enforcement method for a defaulted mortgage. The primary reason is efficiency: Power of sale is faster, simpler, and less costly for the lender. It avoids the need for lengthy court proceedings and usually resolves in months rather than a year or more. Ontario’s laws make power of sale readily available to lenders (most Ontario mortgages include a power of sale clause, and even if not, the Mortgages Act provides for it), so foreclosure is seldom necessary as a first choice.
Foreclosure in Ontario is typically a last resort or used in special circumstances. For example, if the real estate market is very depressed and the property’s value is far less than the mortgage balance, a lender might choose foreclosure so that they can hold title to the property and wait for values to improve.
By doing so, the lender could potentially benefit from future appreciation (since they keep any profit on a later sale in a foreclosure scenario). Another scenario is if there are complications like multiple mortgages or certain disputes, a lender might go the foreclosure route to clear out all other interests and start fresh with the title. But these cases are the exception. In general, foreclosure is rare in Ontario – it’s considered the “remedy of last resort” when power of sale isn’t suitable. As a property owner in Ontario, you are far more likely to encounter a power of sale proceeding if you default, rather than a foreclosure.
What Can Homeowners Do if Facing a Power of Sale or Foreclosure?
Facing the possibility of losing your home is frightening, but knowing your options can make a big difference. Here are some steps and strategies for homeowners:
Whether it’s a power of sale or a foreclosure, there is a limited window (after you receive notice) to fix the default. If you are in a power of sale, you’ll typically have about 35 days to pay off your mortgage arrears plus any fees and stop the process. In foreclosure, a court might give you 30-60 days to redeem.
Use this time if at all possible – find a way to catch up on missed payments or pay off the loan (through savings, borrowing, selling other assets, etc.). Stopping the process early saves your home and avoids extra legal costs. Remember, after the redemption period expires, the lender can demand the entire mortgage balance or proceed to sell the home, which is much harder to deal with, so time is of the essence.
Don’t ignore letters or calls from your lender. Reach out to your lender as soon as you know you’re in trouble. Many lenders would rather find a workable solution than go through the trouble and expense of taking your home. You might be able to negotiate a repayment plan (for example, adding a bit extra to your monthly payments to gradually cover the arrears) or a loan modification (such as extending the mortgage term or adjusting the interest rate to reduce payments). If you demonstrate willingness and a plan to get back on track, the lender may agree to pause or stop the power of sale/foreclosure. The key is to open the lines of communication early and keep your lender informed of what you’re doing to resolve the default.
If your current lender won’t accommodate or you have a lot of other debt, consider refinancing or other financial tools. For instance, if you have equity in your home, you might take out a second mortgage or a home equity line of credit to pay off the arrears and any other pressing debts. Refinancing the mortgage with a new lender for a longer term (to get lower monthly payments) is another option.
Be careful to ensure you can afford the new payments before taking on more debt – the goal is to solve the problem long-term, not just delay it. In some cases, seeking help from a credit counselor or financial advisor to consolidate or reduce other debts (through a consumer proposal or other means) can free up money to put toward your mortgage. The Canadian federal and provincial governments also have programs for homeowners in financial hardship, so research if any apply to you.
It may be emotionally difficult, but if it’s clear that you cannot afford the home, selling it yourself might be better than letting the lender sell it. By selling your property on the market, you have more control – you can potentially get a better price (maximizing your equity) and avoid some legal fees. You could then use the sale proceeds to pay off the mortgage and keep any remaining equity.
This is often a smarter financial move than waiting for a power of sale where the lender will sell under pressure. For example, if your mortgage payments are too high to sustain, you could downsize: sell the current home and pay off the mortgage, then move to a more affordable home or rent temporarily. While you do lose the house, this proactive approach can protect the equity you’ve built and prevent a blemish like a foreclosure or forced sale on your record.
Navigating mortgage default remedies can be complex, so don’t hesitate to seek professional help. An Ontario real estate lawyer can explain your rights under a power of sale or foreclosure and may negotiate with the lender on your behalf. If your financial issues extend beyond the mortgage, a licensed insolvency trustee or a credit counselor can advise on managing other debts (which might be necessary to secure your mortgage).
Sometimes a combination of legal and financial advice is best – for example, exploring a proposal to creditors to reduce unsecured debts and working with your bank on mortgage solutions. These experts have dealt with similar situations and can guide you toward the most suitable option for your circumstances. Remember, the earlier you seek help, the more options you are likely to have.
Conclusion
For property owners in Toronto and across Ontario, understanding the distinction between power of sale and foreclosure isn’t just academic – it can have real impacts on your financial well-being. In summary, power of sale is a faster, lender-driven sale process where you might lose your home but could keep your equity (and remain responsible for any shortfall). Foreclosure is a slower court process that, once complete, causes you to lose your home and any equity, but you are relieved of the remaining mortgage debt.
Ontario leans heavily toward power of sale, but in either scenario, a homeowner’s best strategy is to be informed and proactive. If you ever face a mortgage default situation, knowing these key differences will help you ask the right questions and seek the right assistance. Above all, take action early – with the right steps, you may protect your rights, minimize loss, or even prevent the loss of your home entirely. Knowledge is power, and when it comes to power of sale vs. foreclosure, knowing your options can make all the difference in the outcome.