In Ontario, the power of sale is a commonly used legal remedy that allows lenders to sell a mortgaged property when a borrower defaults—without having to go through the courts. This out-of-court process is governed primarily by the Mortgages Act and provides a streamlined enforcement mechanism for mortgagees while preserving certain rights for borrowers. However, to be effective and legally valid, the process must strictly comply with statutory requirements. Below is a comprehensive overview of how Power of Sale works in Ontario, including each critical stage and what both borrowers and lenders should be aware of.
The process begins once a borrower is in default—whether due to missed payments, unpaid property taxes, lapsed insurance, or other covenant breaches. At this stage, the lender should confirm the default and review the mortgage terms to ensure they contain a valid power of sale clause. A title search is also crucial to identify any other parties with registered interests, such as lienholders or secondary mortgagees. The lender must also obtain up-to-date financial statements outlining the outstanding arrears and the total amount due.
Once these preliminary checks are complete, the mortgagee may proceed to issue a Notice of Sale under section 42 of the Mortgages Act. This notice must be served on the borrower, any guarantors, and all parties with a registered interest in the property. Service can be done via personal delivery or registered mail. The notice must include specific statutory content such as the amount in arrears and the redemption period, and must be served at least 35 days before any sale-related actions can take place (or 40 days if sent by mail and the property is owner-occupied).
The redemption period is a critical stage. Until this period expires, the lender cannot proceed with selling the property. If the borrower pays the full amount due—including arrears, legal costs, and administrative fees—within this window, the process is halted, and the mortgage may be reinstated or discharged accordingly.
If the borrower fails to redeem, the lender may proceed to the sale process. A fair market value appraisal is recommended to ensure the sale is commercially reasonable. The property can then be sold either by private sale—typically through a licensed real estate agent—or by public auction. While the Mortgages Act does not specify the method of sale, courts have emphasized that lenders must act in good faith and make efforts to sell the property for fair market value. Disclosure of the property’s power of sale status is also a best practice to ensure transparency with potential buyers.
Once the sale is finalized, proceeds must be distributed in a specific order set out in section 27 of the Mortgages Act: first to cover costs and expenses of the sale, then toward interest and principal under the mortgage, followed by payments to any secondary encumbrancers. Any remaining funds (the surplus) must be returned to the original borrower. A mortgage discharge should also be registered at this time to complete the legal transition.
Following the sale, the lender is responsible for preparing a full accounting of the sale proceeds and disbursements. If the sale proceeds are insufficient to cover the outstanding debt, the lender may consider pursuing a deficiency judgment against the borrower. If the property is still occupied after the sale, the purchaser or lender can apply for a Writ of Possession under Rule 60.10 of the Rules of Civil Procedure to remove the occupants. If the property contains rental units, special protections under Part V of the Mortgages Act and the Residential Tenancies Act may apply.
Statutory protections also extend to the buyer. A declaration by the lender confirming compliance with notice and sale provisions serves as conclusive evidence of a valid sale under section 35. Section 36 provides additional security by protecting the buyer’s title from being impeached due to procedural irregularities—although the original borrower may still have the right to claim damages if the process was mishandled.
Power of Sale is a powerful tool, but it comes with complex legal responsibilities. Lenders must follow each step precisely to avoid disputes or liability, while borrowers should be aware of their rights to redeem or contest improper notice. Given the financial and legal stakes involved, both parties are strongly encouraged to seek legal counsel before, during, and after a power of sale process.
Concerned about a mortgage default or navigating a Power of Sale situation? Contact Cactus Law today for experienced, strategic legal support that protects your interests every step of the way.