Power of Sale vs. Foreclosure in Ontario: What's the Difference?

When a mortgage goes into default in Ontario, lenders generally have two main ways to enforce it: power of sale and foreclosure. They are often confused, but they work very differently — and the difference matters enormously to how much you could keep or lose.

The short answer: In a power of sale, the lender sells your property without taking ownership and returns any surplus to you. In a foreclosure, a court makes the lender the owner of the property. Power of sale is by far the more common remedy in Ontario; foreclosure is rare.

#What is a power of sale?

A power of sale lets a lender sell the property without becoming its owner and without a court order. It is governed by the Mortgages Act and is by far the most common mortgage-enforcement remedy in Ontario.

Before selling, the lender must serve a statutory Notice of Sale and observe a redemption period of at least 35 days, during which the borrower can act. After the sale:

• The proceeds pay the lender's costs, interest, and mortgage debt, in that order.
• Any surplus left over goes back to the borrower.
• Any shortfall can be pursued against the borrower on the personal covenant in the mortgage.

Because no court process is required, a power of sale is faster — often roughly 3 to 6 months — and cheaper than the alternative. (If you are facing one, see our guide on how to stop a power of sale in Ontario.)

In broad terms, a power of sale unfolds like this:

• Default — the borrower misses payments, or fails to pay property taxes or keep insurance in place.
• Notice of Sale — after the default has continued for the required period, the lender serves a Notice of Sale under the Mortgages Act.
• Redemption period — the borrower has at least 35 days to redeem, refinance, negotiate, or sell.
• Sale and distribution — if the default is not cured, the lender sells the property, applies the proceeds to costs, interest and debt, and returns any surplus to the borrower.

#What is foreclosure?

A foreclosure is a court process. The lender applies to court for a final order of foreclosure that extinguishes the borrower's equity of redemption and makes the lender the registered owner of the property.

This produces a very different result. If the property is worth more than the debt, the lender generally keeps that windfall — there is no surplus returned to the borrower the way there is in a power of sale. However, the borrower or other interested parties (such as second mortgagees) can ask the court to convert the matter into a judicial sale instead, so the property is sold and the proceeds distributed rather than handed to the lender outright.

Foreclosure is slower and more expensive because of the court involvement, which is a large part of why it is rarely used in Ontario.

The path through court generally looks like this:

• The lender issues a claim or notice beginning the foreclosure action.
• Interested parties — the borrower and any subsequent encumbrancers — are given an opportunity to respond, redeem, or request a judicial sale.
• If no one redeems and no sale is ordered, the court grants a final order of foreclosure, and the lender becomes the owner.

Because every step runs through the court, even a straightforward foreclosure can take considerably longer than a power of sale — time during which interest and costs continue to mount.

#Power of sale vs. foreclosure: side-by-side comparison

#Why do lenders usually choose power of sale?

For most lenders, power of sale is the obvious choice for three reasons:

• Speed — there is no court application to wait on.
• Lower cost — avoiding litigation keeps enforcement expenses down.
• The ability to still sue for a shortfall — the lender can recover any deficiency from the borrower personally.

That last point is the crucial trade-off. In a foreclosure, by taking title to the property, the lender generally gives up the right to sue for a deficiency. So if the home is worth less than the debt, foreclosure leaves the lender unable to chase the borrower for the difference — another reason lenders favour power of sale.

#Are there other mortgage-enforcement remedies?

Power of sale and foreclosure are the two main options, but they are not the only ones. A lender may also pursue:

• Taking possession of the property (for example, to secure or rent it pending sale).
• Suing on the covenant — obtaining a judgment for the debt directly against the borrower.

It is also worth repeating that a foreclosure can be converted to a judicial sale at the request of the borrower or another interested party, which can protect equity that would otherwise be lost to the lender.

#Which remedy is better for the borrower?

Neither remedy is automatically "better" — it depends on the numbers and on your goals.

• If your home has equity (it is worth more than you owe), a power of sale generally serves you better, because any surplus must be returned to you. In a foreclosure, that equity can be lost to the lender unless the matter is converted to a judicial sale.
• If your home is worth less than the debt, a foreclosure can, in some cases, work in your favour: because the lender takes title, it usually gives up the right to pursue you personally for the shortfall. Under a power of sale, by contrast, the lender can still sue you on the covenant for any deficiency.

In practice, lenders choose the remedy — not borrowers — and they overwhelmingly choose power of sale. That makes it all the more important for a borrower to understand the consequences and to act early, whether by redeeming, refinancing, negotiating, or selling.

#What does this mean for you?

If you are a borrower in default, the remedy your lender chooses shapes your outcome: power of sale preserves your right to any surplus but exposes you to a shortfall claim, while foreclosure threatens your equity but usually ends the lender's ability to sue you personally. If you are a lender, choosing the right remedy affects how quickly and fully you recover.

Either way, these decisions are technical and time-sensitive. Our team advises both borrowers and lenders on the full range of enforcement options. Learn more about our mortgage enforcement services, and if you are facing default or a Notice of Sale, contact Tokas Lex promptly — the earlier you get advice, the more options remain open.

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This article provides general information about Ontario law and is not legal advice. The remedies available under the Mortgages Act depend on the terms of the mortgage and the facts of each case. For advice on your specific situation, please consult a lawyer.