When a mortgage goes into default in Ontario, most people assume the lender will simply ’take the house.’ The reality is more nuanced — and for both lenders and borrowers, understanding the difference between power of sale and foreclosure is essential to knowing your rights and your exposure.
Two Very Different Legal Remedies
Ontario mortgage law offers lenders two primary enforcement remedies when a borrower defaults: power of sale and foreclosure. While both ultimately allow the lender to recover on a defaulted loan, they operate through entirely different legal mechanisms — and they produce very different outcomes for the borrower.
Power of sale is by far the more common remedy used in Ontario. Foreclosure is rare and reserved for unusual circumstances. Understanding why requires a look at how each process unfolds.
Power of Sale: The Practical Reality
A power of sale is a contractual right built into almost every Ontario mortgage. It allows the lender to sell the mortgaged property without going to court — provided they follow the procedural requirements set out in the Mortgages Act.
How the Process Begins
When a borrower misses payments and fails to cure the default, the lender sends a Notice of Sale under Section 31 of the Mortgages Act. This notice gives the borrower a statutory redemption period — typically 35 days for residential properties — during which the borrower can pay the full amount in default and reinstate the mortgage.
If the borrower does not redeem during that period, the lender may proceed to sell the property. Critically, the lender must exercise power of sale in good faith and take reasonable steps to obtain fair market value. This is not optional — it is a legal obligation.
What the Borrower Gets Back (or Doesn’t)
After the property sells and the lender recovers what is owed — principal, interest, penalties, legal costs, and sale expenses — any surplus proceeds belong to the borrower. If the sale price is less than what is owed, the lender may pursue the borrower for the shortfall through a separate legal action. This is called a deficiency judgment.
This exposure to a deficiency judgment is one reason borrowers should act quickly when they receive a Notice of Sale. The sooner you engage a lawyer, the more options remain available.
What Borrowers Can Do During a Power of Sale
The redemption period is your most important window of opportunity. During those 35 days — or longer if the lender grants an extension — you can:
- Pay the arrears and reinstate the mortgage
- Refinance with another lender and pay out the defaulting mortgage in full
- Sell the property yourself before the lender completes the sale, preserving your equity
- Negotiate with the lender for a repayment arrangement or forbearance agreement
Doing nothing is the worst option. Once the redemption period expires and the lender sells the property, your options shrink dramatically.
Foreclosure: The Rarely Used Alternative
Foreclosure is a court-supervised process in which the lender seeks to extinguish the borrower’s right of redemption entirely and take title to the property itself. Unlike power of sale, foreclosure does not result in the lender selling the property on behalf of the borrower — the lender becomes the owner.
Because of this, foreclosure eliminates any surplus that would otherwise go back to the borrower. It also eliminates the lender’s right to pursue a deficiency judgment — the court extinguishes all obligations on both sides.
Lenders in Ontario rarely pursue foreclosure because it is court-supervised (slow and expensive), it strips the lender of the ability to claim a deficiency, and it leaves the lender holding a property they may not want to own. Power of sale is faster, cheaper, and gives the lender the right to pursue shortfalls.
Junior Lienholders: A Critical Consideration
When a first mortgagee exercises power of sale, junior creditors — second mortgagees, judgment creditors, CRA tax liens — are affected. The lender exercising power of sale must serve notice on all registered encumbrancers. Junior creditors have their own redemption rights and can protect their position by paying out the first mortgagee.
For second mortgage lenders in particular, a first mortgagee’s power of sale is a trigger to act. The second mortgagee’s security can be wiped out by the sale if they do not respond. Seeking immediate legal advice when a first mortgagee initiates power of sale proceedings is essential.
The Lender’s Obligations: Good Faith and Fair Value
A lender exercising power of sale is not free to dump the property at any price. Ontario courts have confirmed that lenders must obtain fair market value for the property at the time of sale. This does not mean the lender has to wait for the ideal market conditions, but it does mean they cannot sell at a fire-sale price that benefits a related party or simply minimizes their effort.
Borrowers who believe a power of sale was conducted improperly — for example, where the lender sold to an insider at below-market value — may have grounds to challenge the sale or claim damages. These are complex proceedings requiring experienced legal representation.
Practical Guidance for Both Sides
For borrowers: the moment you miss a mortgage payment, the clock starts. Do not wait for a formal notice. Speak to a mortgage lawyer about your options before the lender takes formal steps. The earlier you act, the more you can do.
For lenders: power of sale is a powerful remedy, but procedural missteps can expose you to legal challenges. Ensure your notices comply with the Mortgages Act, that you are acting in good faith, and that the sale process is properly documented.
Final Thoughts
Power of sale and foreclosure represent two very different paths through mortgage default. In Ontario, power of sale is the dominant remedy — and it comes with important rights and obligations for both sides. Whether you are a borrower facing default or a lender considering enforcement, experienced legal counsel is not a luxury. It is the difference between protecting your interests and losing them entirely.
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Goldstone Law Professional Corporation serves clients across Mississauga, Brampton, Oakville, and the greater GTA in real estate, corporate, estate, and mortgage law. Whether you are buying your first home, structuring a business deal, or planning your estate, our team provides the clear, practical legal guidance you need.
Visit goldstonelawpc.com or call us at 905-595-9917. We are located at 201-186 Robert Speck Parkway, Mississauga, ON L4Z 3G1.
Disclaimer: This article is intended for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please consult a qualified Ontario lawyer.
This article is provided for general information only and does not constitute legal advice. For advice about your specific situation, please contact Goldstone Law PC directly.