In Ontario, a lender that isn’t paid can sell the home through power of sale instead of taking it through foreclosure. The lender needs the mortgage to allow it, the borrower must be in default for at least 15 days, and the lender must give at least 35 days notice of its intention to sell. The owner stays on title until the sale closes.
Listings that say “sold under power of sale” attract a lot of myths, mostly about huge discounts. This article explains the legal steps, what a buyer actually gets, what the seller can still do, and how to think about the numbers, using Ontario government pages and the Mortgages Act as the base.
It is general information and not legal advice. Anyone in default or buying such a home should talk to a real estate lawyer early.
What power of sale means
A mortgage is a loan secured on a property. Almost every Ontario mortgage contains a clause that lets the lender sell the property if the borrower stops paying. That clause is the power of sale. The lender does not become the owner. It acts as a seller on the owner’s behalf, using rights the mortgage gave it, and it follows rules set by Part III of the Mortgages Act.
Once the property sells, the money is used in a set order. Ontario’s land registration guidance says proceeds go to the lender’s principal and interest, the lender’s expenses for the sale, and other encumbrances on title. Anything left over, the residue, goes to the mortgagor, which is the owner who borrowed.
That last point separates power of sale from what many people have in mind from American television. The owner isn’t wiped out with nothing. If the home sells for more than the total owed, the owner gets the difference.
Power of sale compared with foreclosure
Foreclosure is a court process that ends the borrower’s right to redeem the property and transfers ownership to the lender. The lender then owns the home outright, whatever its value. It is used in Ontario less often than power of sale, and this article does not rely on any official count of how often each is used.
Under power of sale, ownership does not pass to the lender. The lender arranges a sale to a third-party buyer. The borrower keeps title until closing and keeps a right to stop the process by paying what the law requires.
Both routes still start the same way, with missed payments. The differences lie in what the lender must do next, who ends up owning the property and who keeps any extra value. In broad terms, power of sale gives the borrower a chance to receive surplus money, while foreclosure closes that door.
There is a third case worth knowing about. Some mortgages have no power of sale clause. In that situation the Mortgages Act allows a statutory power of sale under Part II, after three months of default and 45 days notice to people with an interest in the property, according to the Ontario land registration guide. Most residential mortgages from banks and mortgage companies do contain a power of sale clause, so Part III is the usual route.
The steps, in order
Every case has its own facts, and lawyers add steps. But the core sequence under the Mortgages Act looks like this.
- The borrower misses a payment, and the default goes on for at least 15 days.
- Next, the lender serves a Notice of Sale under Mortgage (Form 1) on the borrower and others with an interest in the property.
- After that notice, at least 35 days must pass before any further step to enforce the mortgage, unless a judge gives leave.
- Once that time is up, the lender may start a court claim or move ahead with a sale, depending on the mortgage and the facts, and it lists the property.
- A buyer signs an agreement, the sale closes, and the money is paid out in the legal order.
The times above are minimums. Nothing stops a lender from waiting longer, and many do. Lenders often prefer a payment plan to a sale, because a sale costs money and takes time. But the law sets the earliest dates, not the typical ones, and no official source publishes an average length for the whole process. So this article gives none.
The Form 1 notice is a regulated document. It sets out the amounts claimed, the borrower’s right to pay the arrears and costs, and the date after which the lender may go ahead. You can read the official form on the Ontario Court Services site listed below.
What the 35 days are for
The notice period is the borrower’s main window to fix the problem. During it the borrower can pay the arrears, the missed payments, plus the lender’s reasonable costs, and the mortgage carries on. That is called redeeming or curing the default.
A borrower who can raise money quickly, for instance from a family loan, a refinance with another lender or a partial sale of an asset, may stop the process at this stage. Someone who can’t should ask a lawyer about options such as a private sale, a negotiated payment plan or listing the property with a realtor before the lender does. A sale the owner controls is often better than one the lender controls, though this depends on the facts, and no official figures compare the two.
The lender’s duty when selling
A lender selling under power of sale is not free to accept any offer. The law expects it to act in good faith and to take reasonable steps to get a fair price. In practice, lenders list the property with a realtor, often on the MLS, and market it much as any seller would. If the owner believes the sale price was far too low because the lender acted carelessly, the owner can raise that with a court. That is a matter for a lawyer, and results depend on the evidence in each case.
What happens to the money
An example with round numbers shows how the payout works. The figures are made up to show the arithmetic.
Say the borrower owes $600,000 in principal, $12,000 in unpaid interest and $8,000 in the lender’s legal and sale costs. That is $620,000. A second mortgage holder is owed $40,000. Then the home sells for $700,000.
The first lender receives $620,000. Another $40,000 goes to the second lender. The remaining $40,000 goes to the owner, less any other claims registered on title, such as unpaid property taxes.
Change the sale price to $640,000 and the owner receives nothing, because $620,000 plus $40,000 equals $660,000 and the sale falls short. If it falls even shorter than what the first lender is owed, the lender can still look to the borrower for the shortfall, depending on the mortgage and the law. That point is where a lawyer’s advice matters most. Insured mortgages add another layer, because the insurer that pays a lender may then pursue the borrower.
Buying a power of sale property
From the buyer’s side, the purchase looks much like any other, with a few differences that come from who the seller is.
The seller is a lender, not the owner who lived in the home. The lender has often never been inside. So it gives little or no information about the condition of the property and usually refuses to make promises about it. Listings commonly say the home is sold “as is, where is”. That means the buyer takes on the risk of hidden problems, such as damage that a previous owner left behind or repairs that were never done.
Buyers should also expect an agreement that is drafted by the lender’s lawyer and favours the lender. Conditions such as a home inspection or financing may be limited or refused. A lawyer should review the agreement before you sign. If the property is occupied, ask how and when possession is delivered, because the lender may not be able to hand over an empty home on a fixed date.
The purchase price is not the whole cost. The usual closing costs apply. Land transfer tax is one of the biggest. In Toronto a buyer pays both the provincial and the municipal tax. On a $1,000,000 purchase, that is $16,475 provincial and $16,475 Toronto, according to the rates in this site’s calculators. Use the land transfer tax calculator and the closing costs calculator to see the full cost before you bid.
If you are the borrower
The earlier you act, the more choices you have. A missed payment does not mean a sale is coming next week. The law requires notice and a waiting period, and lenders usually prefer to talk before starting the process.
Contact the lender first, and do it in writing where you can, so there is a record of what was offered and when. Ask about a payment plan, a deferral or an extended amortization. Then check your other options: a new mortgage with a different lender, help from family, selling the property yourself, or selling part of your other assets. A licensed paralegal or lawyer can read the mortgage and the notice and tell you which deadlines apply.
Don’t ignore mail from the lender’s lawyer. The Notice of Sale is a legal document with a date on it, and missing that date reduces your choices. If you have equity in the home, a sale you run, with a realtor you choose, often leaves more in your hands than one the lender runs. If you have little or no equity, the question becomes how to limit any shortfall, and that too is a matter for a lawyer.
A buyer’s cost example
Suppose a buyer looks at a semi-detached home in Toronto listed under power of sale at $850,000. The buyer bids $850,000 and wins. Here is a rough tally, using simple numbers for the tax and clearly labelled guesses for the rest.
Ontario land transfer tax on $850,000 is 0.5% on the first $55,000 ($275), 1% on the next $195,000 ($1,950), 1.5% on the next $150,000 ($2,250), and 2% on the remaining $450,000 ($9,000). The total is $13,475. Toronto’s municipal tax uses the same bands up to $2 million, so it is another $13,475. Together the two taxes come to $26,950, before any first-time buyer rebate, which can be up to $4,000 provincially and up to $4,475 in Toronto.
Now add the parts no official page can price for you. A lawyer, a title search and insurance have real costs. A home inspection may or may not be allowed. And the biggest number, repairs, is unknown until you have seen inside. Suppose an inspector finds that the roof, the furnace and the wiring need work. Contractors give quotes, and only quotes count. A buyer who budgets $0 for repairs on an as-is home is guessing, and guessing low.
The point of the exercise is that the bid price is one line among many. A discount only exists after all the lines are added up and compared with a similar home that needs less work. Use the Toronto land transfer tax calculator for the tax lines. See also the Down Payment calculator, and the full set of real estate calculators.
Sources
- Ontario land registration, powers of sale
- Mortgages Act, R.S.O. 1990, c. M.40 (e-Laws)
- Ontario Court Services, Form 1 Notice of Sale under Mortgage
Common questions
Does the owner lose the house immediately in a power of sale?
What is the difference between power of sale and foreclosure in Ontario?
Are power of sale homes much cheaper?
Can a borrower stop a power of sale?
Last reviewed: . Figures come from the official sources listed above. How we check the numbers and our editorial policy.