Power of sale is a legal remedy that lets a mortgage lender in Ontario sell a home when the owner defaults on the mortgage, without going to court first. The lender has to try to get fair market value, so power of sale homes are rarely the bargains people expect.
Under Ontario's Mortgages Act, the lender can send a notice of sale once a payment has been in default for at least 15 days, and it can't sell until at least 35 days after that notice. Until the lender has a firm deal with a buyer, the owner can generally stop the process by bringing the mortgage back into good standing. The rest of this page covers how that works, what it means if you're thinking of buying one, and what owners can do.
Power of sale vs foreclosure
Power of sale and foreclosure are both ways a lender recovers its money after a default, but they work very differently. In a power of sale, the lender sells the home and pays itself out of the proceeds; anything left over goes to others with claims on the home and then to the owner. In a foreclosure, the lender asks a court to transfer ownership of the home to the lender itself.
| Power of sale | Foreclosure | |
|---|---|---|
| Court needed to sell | No | Yes |
| Who owns the home after | The buyer | The lender |
| Money left over after the debt | Goes to later claims, then the owner | Generally stays with the lender |
| How common in Ontario | The usual route | Uncommon |
Power of sale is the usual route in Ontario because it's faster and doesn't need a court order to sell. Most mortgages registered in Ontario include a power of sale clause. If a mortgage doesn't, the Mortgages Act gives the lender a power of sale anyway, on a slower timeline (see below).
A lender can still go to court for other reasons during a power of sale, most often to get an order for possession if the owner doesn't leave. Talk to a lawyer about how this applies to a specific mortgage.
The power of sale timeline
The power of sale timeline has three legal stages: default, notice, and sale. Here's how the Mortgages Act sets it out for a mortgage with a power of sale clause (Part III of the Act).
1. Default
A default means the owner has broken a term of the mortgage, usually by missing a payment. Under the Act, the lender can't send a notice of sale until the default has continued for at least 15 days. In practice, lenders usually contact the owner and send a demand letter first, and many give longer than that before starting, but the law only requires 15 days.
2. Notice of sale
The notice of sale is a formal document, in a form set by regulation, that names the property and the mortgage, sets out what's owed, and gives a date after which the lender can sell. The lender must send it to everyone with a registered interest in the property that ranks after its mortgage: the owners, later mortgage lenders, people with registered judgments against the owner, and others the Act lists. It can be served in person or by registered mail.
The sale can't happen until at least 35 days after the notice is given. During that notice period, the lender generally can't start other court proceedings on the mortgage without a judge's permission, except to protect the property from damage.
3. Sale
Once the notice period ends, the lender can sell, usually by listing the home with a real estate brokerage on the open market. If the owner is still living there and won't leave, the lender usually needs a court order for possession first, enforced by the sheriff.
When the sale closes, the Act sets the order the money is paid out:
- The costs of the sale.
- Interest and costs owed under the mortgage.
- The principal owed under the mortgage.
- Later mortgages and other registered claims, in order of priority.
- Certain tenants' rent deposits.
- Whatever is left, to the owner.
If the sale doesn't cover the debt, the owner can still owe the difference (often called a shortfall or deficiency), and the lender can sue for it.
If the mortgage has no power of sale clause
Under Part II of the Act, the lender's statutory power of sale applies after 3 months of default, the notice can be given after 15 days of default, and the sale can't happen until 45 days after notice. This is uncommon for home mortgages.
How long the whole process takes
There's no fixed total. The legal minimum from a missed payment to a sale is about 50 days (15 days of default, then 35 days of notice), but getting possession, listing the home, and closing a sale usually add months. Ask a lawyer about the timeline in a specific case.
Buying a power of sale home
You buy a power of sale home from the lender, not the owner, and that changes the deal in a few important ways. The lender has never lived there, so it knows little about the property and will promise almost nothing about it.
As is, where is
Power of sale homes are sold "as is, where is": the lender gives no promises about the condition of the house, what's included, or whether past work had permits. Lenders usually attach their own schedule, often called Schedule A, to the standard offer form. It typically says, in various forms:
- The lender makes no representations or warranties about the property or its contents.
- The buyer accepts the property in its current condition.
- The lender doesn't have to provide a survey, and may not have keys, manuals, or details about rental equipment.
- The lender can cancel the deal if the owner pays off or brings the mortgage up to date before a set date, usually closing, with your deposit returned.
Read the schedule with your lawyer before you sign. It overrides parts of the standard agreement.
What that means for you
- Inspect if you can. A home inspection before you firm up is the main way to find out about the roof, furnace, wiring and plumbing. Homes that have been vacant can have problems like burst pipes or mould. See the guides on knob and tube wiring and Kitec plumbing for issues common in older and 1990s to 2000s homes.
- Check the title closely. Your lawyer does a full title search, and title insurance is worth discussing, since no seller is around to answer questions about past work.
- Plan for the deal to fall through. If the owner brings the mortgage up to date before the deadline in the schedule, the lender can cancel. You usually get your deposit back, but not what you spent on inspections or appraisals.
- Tenants may stay. If the home is rented, the tenancy generally continues after a sale under Ontario's residential tenancy law. See the rent control guide, and ask your lawyer before you buy a tenanted home.
- Expect a firm, careful seller. Lenders often take time to respond, may counter on price, and may push back on conditions. Get your mortgage pre-approval and closing funds in order first.
Is the buyer's title safe?
The Mortgages Act protects buyers. Where the lender gave notice in compliance with the Act, the buyer's title can't be challenged because of a defect in the notice process; anyone harmed has a claim against the lender instead. Your lawyer will confirm the lender's paperwork before closing.
Are power of sale homes cheaper?
Power of sale homes are usually not much cheaper, and sometimes not cheaper at all. Ontario courts have held that a lender selling under power of sale must act in good faith and take reasonable precautions to get the property's true market value. A lender that sells too cheaply can be sued by the owner, who stays on the hook for any shortfall.
So lenders protect themselves. They typically get one or more appraisals, list the home on the open market with a brokerage, and price it near what similar homes sell for. A well-priced power of sale home in a busy market can draw several offers, like any other listing.
Where you may see a lower price, it usually reflects something real:
- Condition. A vacant or neglected house, sold as is, with no information from the owner.
- Risk. The deal can be cancelled before closing, and you get no promises about the property.
- Market. In a slower market, a lender may accept a lower offer after time on the market, the same as other sellers.
To judge whether a price is fair, compare it with the market, not with the asking price. The Kitchener, Waterloo and Cambridge market pages show how prices and sales are moving in each city, and the buyer's or seller's market page shows which way the region is leaning.
See what you can afford with your own numbers →
For owners: options before and during the notice period
For an owner who is behind on the mortgage, or thinks they will be, acting early gives the most options. The Financial Consumer Agency of Canada (FCAC) advises calling your lender as soon as you think you might fall behind. Under FCAC's guideline for federally regulated lenders, such as banks, they're expected to offer help suited to your situation if you're at risk of falling behind on the mortgage for your home.
Before a notice of sale
- Talk to your lender. Options can include a temporary payment change, extending the amortization (which raises total interest), or waiving some fees. FCAC lists these as possible measures; what's offered depends on the lender.
- Get advice. A non-profit credit counsellor can help with a budget and other debts. A Licensed Insolvency Trustee, regulated federally, can explain formal options such as a consumer proposal.
- Consider selling yourself. Selling on your own timeline, before the lender takes over, usually gives you more control over price, timing and moving.
After a notice of sale
- You can still bring the mortgage up to date. Under the Mortgages Act, an owner in default can pay the arrears (missed payments) plus the lender's reasonable costs before a sale, and be relieved of the default, even if the mortgage says otherwise. This right generally ends once the lender has a binding agreement with a buyer, although lenders' sale agreements usually let the deal be cancelled if the owner pays before a set date.
- Ask for a statement. You can ask the lender in writing for a statement of what's in default and the costs it has charged. The lender has 15 days to answer; if it doesn't, its enforcement rights are paused until it does.
- Refinance or sell. Paying the mortgage off in full, through a new mortgage or a sale you arrange, ends the process. Your lawyer can get a payout statement from the lender.
- Talk to a lawyer now. The deadlines are short. A real estate lawyer can check whether the notice was given properly, explain your options and deal with the lender. The Law Society of Ontario (LSO) runs a referral service if you need to find one.
After the sale
You're entitled to any money left after the mortgage, the costs and later registered claims are paid, and you may owe a shortfall if the sale doesn't cover the debt. Ask the lender for a full accounting of the sale.