Ontario foreclosure vs Ontario power of sale – What are the differences?

By: Steven Liambas
January 24, 2022

In Ontario, a mortgage lender has the right to take possession of a property if mortgage payments are not made using either the power of sale or foreclosure process. The two processes can result in very different outcomes for a homeowner, but many homeowners do not know the differences between these processes. If you've received a legal notice from your lender it is important to understand which legal process is being used. Depending on which process is used, the timeline and the amount the homeowner receives after the process is completed can be vastly different.

Features of the power of sale process

In a power of sale, the mortgage lender is able to evict the property occupants and sell the property if the borrower is in default of the mortgage. The lender has a duty to sell the property at fair market value, and the property cannot be sold at a deep discount. After the property is sold, the former homeowner has the right to any profits from the sale after deducting debt repayment and fees. Since all the excess profit from the sale goes to the former homeowner, lenders typically do not earn additional profit from completing the power of sale. Most lenders would rather the borrower pay off their debt than sell the property under power of sale. Power of Sale is a much faster process than Foreclosure and requires less involvement from the court system. Most Power of Sales can be completed within 6 months but a Foreclosure can take over a year to complete.

Features of the foreclosure process

In the Foreclosure process, the lender is able to take title to the property. This is different from Power of Sale, where the lender only has the right to sell the property. With Foreclosure the lender must sue the borrower in court and wait for the courts to issue judgment. In addition to taking more time, this requires much more legal work to be processed by the lender's lawyers. Once the Foreclosure is finished, the lender takes title to the property and the former homeowner is not entitled to any future profits from the sale of the property. This means that if the value of the mortgage is much less than the value of the property, the lender is able to make a large amount of money using foreclosure.

The key differences between a power of sale and foreclosure

Power of Sale and Foreclosure share many of the same legal documents throughout the process. In both cases they begin with a Notice of Sale, then after a 35 to 40-day period, the statement of claim is sent followed by the Writ of Possession. In the Statement of Claim, it will be clearly stated whether the action is a Power of Sale or Foreclosure.  It is essential that the homeowner be aware of these key differences between the processes upon receiving the Writ of Possession:

• In Power of Sale the lender sells the property and in Foreclosure the lender takes title to the property

• In Power of Sale the former homeowner gets the excess profits from the sale of the property but in Foreclosure the former homeowner gets nothing

• The Power of Sale process takes around 6 months and a Foreclosure can take over a year

What Can a homeowner do to stop a power of sale or foreclosure?

While the two legal processes have some major differences, the methods of stopping these processes are similar. Every method of stopping a Power of Sale or Foreclosure involves paying the mortgage lender the money they are requesting. Here are some of the most common ways people manage to pay off their lender:

1. Get a second mortgage to bring the first mortgage back into good standing

2. Replace the problematic mortgage with a new mortgage

3. Sell the property before the lender takes it

The best solution depends on the value of the property, the total value of all mortgages on the property and what stage of the legal process the lender is currently in. The simple solution would be to get a new mortgage in order to pay the arrears plus fees on the first mortgage and bring it back into good standing.  If you cannot qualify for a mortgage then the next best option would be to sell the property before the lender can take it. By selling the property you are able to avoid many of the fees involved with the Power of Sale and you can avoid losing equity in the case of Foreclosure.

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