A power of sale is a legal process that allows a mortgage lender in Ontario to sell a property when the borrower defaults on their mortgage, without going through the courts. It is governed by the Ontario Mortgages Act and is the most common method lenders use to recover outstanding mortgage debt in the province.
Power of sale is not the same as foreclosure, though the two terms are often confused. In a foreclosure, the lender takes full ownership of the property through court proceedings, and the borrower loses all equity. In a power of sale, the borrower retains title to the property until the sale closes, and any surplus funds after the mortgage balance, interest, legal fees, and selling costs are paid must be returned to the borrower. This distinction matters. If the property sells for more than what is owed, the homeowner is entitled to the difference.
The process follows a defined sequence. Under the Mortgages Act, the lender must wait at least 15 days after the borrower defaults before issuing a formal Notice of Sale. Once that notice is served, a redemption period begins. The standard redemption period is 35 days, though it extends to 40 days if the property is occupied by a married couple. During this window, the borrower can stop the entire process by paying all arrears, accumulated interest, and the lender's legal costs.
If the borrower does not redeem the mortgage within that period, the lender can proceed to list the property for sale, typically through a licensed real estate agent on MLS. The lender is legally obligated to act in good faith and sell the property at fair market value. Selling below market value without adequate marketing efforts can expose the lender to a legal challenge known as an improvident sale claim.
One significant risk for borrowers is that power of sale does not eliminate their debt. If the property sells for less than the total amount owed, the lender can pursue the borrower for the shortfall. This is another key difference from foreclosure, where the lender absorbs any loss after taking ownership.
Power of sale properties are almost always sold on an 'as is' basis, meaning the lender makes no representations about the property's condition and will not make repairs. Buyers considering a power of sale property should budget for thorough inspections and be aware that the original homeowner may still exercise their right of redemption up until the sale is registered on title. What Is a Conditional Offer in Ontario Real Estate?
