Get a free, no obligation personal loan quote with rates as low as 9.99%
Get Started You can apply with no impact to your credit score

New homebuyers never purchase a house intending to default on their mortgage. However, with homeowners renewing their mortgages at much higher rates than originally expected, this is the current reality for many Canadians.

If you’re in a position where you can no longer afford your mortgage or property tax payments, your lender can sell your house to recoup the money with a power of sale.  

What Is A Power Of Sale? 

If you miss your regular mortgage payments and default on your loan, your lender can take action to recover the amount you owe them. The specifics of how the lender gets its money back are in the terms and conditions of your mortgage. One option is through a power of sale. In a power of sale, your lender has the authority to sell your home to recoup what you owe. 

What Happens During A Power Of Sale?

Defaulting on your mortgage is what initiates a power of sale. There are several ways to default on your mortgage. The obvious one is missing your monthly mortgage payments. Not paying your property tax or breaking your mortgage contract in other ways can also be considered a default.

What happens during a power of sale can vary slightly between provinces. Here’s how it works in Ontario according to the Mortgage Act

Power Of Sale Process In Ontario – An Example

Once you default, your lender has to wait at least 15 days before they can deliver a notice of sale. 

The notice of sale outlines how much you owe on your mortgage, interest, and taxes. It also provides a date when your payments are due. 

You have 30-40 days after the notice to come up with the money and pay your debts. This is known as the redemption period. If you can’t get the money, your lender can sell your house. 

If there’s no power of sale in your mortgage terms, a lender can exercise a statutory power of sale after you’ve defaulted for three months and has to provide 45 days’ notice before selling the property. 

After your house sells, your lender will use the proceeds to pay off the principal, interest, and expenses incurred during the sale of your house.

If there’s any money left over, you get to keep it. 

Power Of Sale vs Foreclosure: What Is The Difference?

While the terms ‘power of sale’ and ‘foreclosure’ are often used interchangeably, there are some differences. 

How The Borrower Is Treated 

In a power of sale, the lender is obligated to try and sell the house for the highest price possible. After the house sells and the mortgage, interest, and other expenses (e.g. realtor and legal fees) are taken care of, any remaining profit goes to the homeowner.

However, if the sale doesn’t cover all the costs, the homeowner is responsible for paying the remaining balance. 

In a foreclosure, when the lender takes over the property and sells the home, they take over ownership and owe the homeowner nothing. However, the lender also takes on any debts or liabilities associated with the property.  

Which Provinces Use Which Process

A power of sale is more frequent in Ontario, New Brunswick, Prince Edward Island (PEI), and Newfoundland and Labrador, while foreclosures are more common in the rest of the country. 

The Speed Of Each Process

A power of sale is generally faster than a foreclosure because it doesn’t have to go through the court system. While different provinces have different timelines, it’s possible for a home to sell in as little as two weeks after notice is given.  

Do Lenders Need To Provide Buyers With A Notice?

Ontario

In Ontario, a lender must wait at least 15 days after mortgage default to provide a notice. The notice is meant to alert the borrower of the lender’s intention to use a power of sale. The lender needs to send the notice at least 35 days before the power of sale is initiated. 

New Brunswick

In New Brunswick, a notice of sale is required four weeks in advance of the sale. The document must include details about the time and place of the sale. 

Prince Edward Island

In the province of PEI lenders also have to deliver a notice before a power of sale, but when this happens varies. PEI’s Real Property Act doesn’t provide specific times for when the notice has to be delivered.  

Newfoundland & Labrador

A lender can not exercise a power of sale in Newfoundland & Labrador until notice is given to the borrower. The borrower has 30 days after the notice to pay their debts.  

Can You Stop A Power Of Sale In Canada?

It is possible to stop a power of sale in Canada. For instance, once the notice has been given, the borrower has time to bring the mortgage into good standing. 

This means that if you can pay back your missed mortgage payments, property taxes, and any other debts and get back to good standing, you can avoid a power of sale.

How To Stop A Power Of Sale

While you can stop a power of sale in Canada, you need to act fast. Remember, once the redemption period ends, your lender can sell your house. 

Here are a few strategies you can consider if you want to stop a power of sale: 

  • Sell your house. If you can no longer afford your mortgage payments, consider selling your house and paying off your debts. This can help you to avoid legal and administrative fees associated with a power of sale.
  • Renegotiate your mortgage. Speak to your mortgage lender to renegotiate the terms of your mortgage. Your lender is required to work with you to come up with a solution. Reach out as soon as possible.
  • Take out a second mortgage. A second mortgage allows you to turn the equity you’ve built in your home into a cash loan, which you can use to pay off your debts.
  • Apply for a personal loan. If you have a high credit score, consider using a personal loan to pay off your debts and get your mortgage back in good standing. Or, if you have a HELOC you could consider using that to pay off your mortgage until you can afford it again.

Should You Buy A Power Of Sale Home? 

With a power-of-sale home, there’s no guarantee you’ll get a good deal. Remember, the lender is obligated to sell the house at fair market value, so you can’t go into the sale expecting a huge discount. 

Unlike a regular sale, you can’t negotiate any home repairs or fixes before you purchase the home. You take it as it is. This means you could purchase a home that isn’t in the best condition. 

You also won’t have the opportunity to get answers to questions about the house from the homeowner. In this situation, it’s the lender selling the house. 

To try and minimize your risks, consider having a home inspection before you make a decision. This can at least let you know if there are any major red flags to watch out for. You can also consult professionals such as a real estate agent or real estate lawyer for more guidance and information.

The Bottom Line

If you’re struggling to make your mortgage payments or you’ve already missed one, reach out to your lender as soon as possible to see if they can help. If your lender initiates a power of sale, you have the redemption period to try and repay your debts. However, if you can’t come up with money to bring your mortgage into good standing, you can consider selling your home. You can also speak to a real estate professional or lawyer for assistance in navigating this process. 

Power of Sale FAQs

What causes a power of sale?

If you’re unable to meet your mortgage obligations, such as making your mortgage or property tax payments, and you default on your loan, this can cause a power of sale.

What are the risks of buying a power of sale home?

When you buy a power-of-sale home, you have to purchase the property in “as-is” condition. Since you’re buying from the lender instead of the homeowner, you won’t have an opportunity to negotiate any home repairs before the purchase, and you won’t get to ask the seller any questions about the condition of the home.  Getting a home inspection and speaking to real estate and legal professionals can help mitigate some of the risks.

What is foreclosure?

Foreclosure is a legal process that allows a lender to repossess a property if the borrower can’t keep up with their mortgage payments and defaults on their loan. 

Jessica Martel avatar on Loans Canada
Jessica Martel

Jessica is a freelance writer, professional researcher, and mother of two rambunctious little boys. She specializes in personal finance, women and money, and financial literacy. Jessica is fascinated by the psychology of money and what drives people to make important financial decisions. She holds a Master's of Science degree in Cognitive Research Psychology and Bachelor's degrees in Communications, and Psychology. Jessica is also a Certified Financial Education Instructor℠ (CFEI®). Her work has been published on Investopedia, The Balance, Money Under 30, Time.com, Seeking Alpha, Consumer Affairs, and more.

More From This Author

Special Offers

More From Our Experts

https://loanscanada.ca/wp-content/uploads/2024/11/Buying-A-Second-Home-And-Renting-Out-The-First-In-Canada.png
Rules For Buying A Second Home And Renting Out The First In Canada

By Lisa Rennie
Published on November 25, 2024

Learn the rules for buying a second home and renting out the first in Canada, and how each type of property is treated.

https://loanscanada.ca/wp-content/uploads/2024/11/how-to-buy-a-house.png
How To Buy A House In Canada: A Step-by-Step Guide

By Lisa Rennie

Buying a house is a complex process. We've broken down each step so you know exactly what's to come when buying a house.

https://loanscanada.ca/wp-content/uploads/2024/11/Secondary-Suite-Incentive-Program.png
Boost Your Property Value: Secondary Suite Incentive Programs Across Canada

By Sean Cooper

Thinking of adding a basement suite to your home? Find out how you can cover your costs using the government secondary suite incentive programs.

https://loanscanada.ca/wp-content/uploads/2024/10/HOME-STAGING.png
Benefits Of Home Staging In Canada

By Jessica Martel

Thinking about staging your home? Find out how staging a home can result in a faster sale and an increased purchase price.

https://loanscanada.ca/wp-content/uploads/2024/10/House-flipping.png
House Flipping Tax Rules In Canada

By Sandra MacGregor

Find out how viable house flipping is to generate income given the new anti house flipping tax rules in Canada.

https://loanscanada.ca/wp-content/uploads/2024/10/home-equity-emergency-fund.png
Should You Use Home Equity As An Emergency Fund?

By Lisa Rennie

If you have a financial emergency would tapping into your home equity be a good idea? Find out if a HELOC or home equity loan in a good option.

https://loanscanada.ca/wp-content/uploads/2015/10/How-to-shop-for-a-mortgage.png
How To Successfully Shop For A Mortgage

By Caitlin Wood, BA

Click through to read our three step guide and learn how to successfully shop for and get your mortgage approved.

https://loanscanada.ca/wp-content/uploads/2024/10/Cottage-mortgage.png
How To Get A Mortgage On A Cottage In Canada: The Ultimate Guide

By Sean Cooper

From larger down payments to passing the stress test and understanding the tax implications, there’s a lot to consider when buying a cottage.

Recognized As One Of Canada's Top Growing Companies

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Free
Service
Expert Tips
And Advice
Exclusive
Offers

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.

Koho Prepaid Credit Card