ARTICLE
3 September 2024

Foreclosure vs. Power Of Sale – What Are The Differences?

DS
Devry Smith Frank LLP

Contributor

Since 1964, Devry Smith Frank LLP – conveniently located in Whitby, Barrie and headquartered in the Don Mills area of Toronto, has been a trusted advisor and advocate for corporations, individuals, and small businesses. Our full-service Canadian law firm is comprised of over 175 dedicated legal and support staff, delivering personalised and transparent legal expertise in virtually every area of law.
One of the unfortunate circumstances of defaulting on mortgage obligations is the possibility of foreclosure or power of sale.
Canada Finance and Banking

One of the unfortunate circumstances of defaulting on mortgage obligations is the possibility of foreclosure or power of sale. These terms are often, but incorrectly, used interchangeably. Both foreclosure and power of sale result in repossession and sale of the home, but the manner in which the repossession occurs differs depending on which process is used.

Power of Sale

A power of sale is the most common forced sale process. A power of sale occurs when the mortgagee (the lender), obtains the legal right to evict the occupants of a property due to a default in their mortgage payment. The mortgagee then sells the property to recover any funds owing.

The power of sale process begins with the issuance of a Notice of Sale by the mortgagee. Once that is granted, there is a 35-day redemption period in which the mortgagor (the borrower), can bring mortgage arrears current.

If the mortgagor is unable to pay the arrears, the mortgagee will receive an issuance of judgment by the court. At that point, the mortgagee can obtain a Writ of Possession and proceed to sell the home.

Foreclosure

In a foreclosure, the mortgagee takes the legal title to the property. In other words, the mortgagee has complete ownership and control over the property and can sell the property as they see fit. Foreclosures may be preferable to lenders when the real estate market is down, and the value of the property is not currently high enough to repay the mortgage debt.

To commence an action for foreclosure, the mortgagee files a Notice of Intention to Redeem. Upon receiving a final order of foreclosure, the mortgagee is free to deal with the property however they want.

This process is lengthier and typically does not begin until several months of missed payments.

A court of equity is willing to hear a meritorious application for relief and set aside a final order of foreclosure. Banbury v Tahir outlined five requirements that must be satisfied:

  1. reasonable promptness on the part of the applicant;
  2. reasonable prospect of payment at once or in a short period of time;
  3. activity on the part of the applicant to raise the money necessary to redeem on time;
  4. the applicant must have a substantial interest in the property; and
  5. where the property has been sold after foreclosure, the rights of the purchase will not be unduly prejudiced.

Below is a list of key differences between the two terms.

FORECLOSURE

POWER OF SALE

Mortgagee obtains legal title or ownership

Mortgagee obtains a right to sell

Typically occurs 4 months after missed payments

Typically occurs as soon as 15 days after missed payments

Redemption period is typically 60 days

Redemption period is 35 days

Mortgagee has no obligation when selling property

Mortgagee must sell at fair market value

Equity or profit from the sale kept by the mortgagee

Equity or profit from the sale is paid to the mortgagor

Mortgagee loses the right to sue for any shortfall

Mortgagee can sue for any shortfall

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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