Owning and maintaining a property is a big responsibility. As a homeowner, you are accountable for making monthly mortgage payments and also need to juggle other expenses such as home insurance, property taxes and other household costs. In the event that you’re unable to meet these responsibilities, your lender has the authority to seize the property and resell it through what is called “a power of sale.”

What is a power of sale?

A power of sale is a clause that permits lenders to sell a borrower's property if they default on their mortgage payments. The process begins when the lender sees consistent missed payments from the homeowner over a period of time, prompting them to contact the homeowner to find out what's going on. Failure to make monthly payments, pay property taxes and upkeep home maintenance are all factors that your lender can point out.

Power of sale vs. foreclosure. What’s the difference?

A foreclosure is similar to a power of sale in that if you fall behind on your mortgage payments, you risk losing your home. The lender becomes the immediate homeowner in a foreclosure, whereas the lender is compelled to sell the home to the highest bidder in a power of sale. Any proceeds from the sale of the home wipe the former homeowner's debt slate clean and if any funds remain, they are permitted to keep them while the lender keeps possession of the property. However, if the home doesn’t sell for a higher value, the previous owner is responsible to pay any remaining debt. It’s also important to note that the power of sale process is fairly quicker than a foreclosure because it avoids judicial interference. Since the foreclosure process involves the provincial court, it can typically take six months to settle.

Power of sale vs. foreclosure within Canada

When it comes to dealing with outstanding mortgages, each province and territory in Canada either uses the power of sale or foreclosure. The foreclosure route is used in Quebec, British Columbia, Alberta, Manitoba, Saskatchewan, Nova Scotia and the three territories. On the other hand, Ontario, Prince Edward Island, New Brunswick and Newfoundland and Labrador use the power of sale.

Are homeowners notified in advance?

Homeowners will be notified if their mortgage payments aren’t paid. Following that, they will also be advised when a power of sale is proposed. Before the power of sale process can proceed, lenders are required to inform homeowners in written form.

  • In Ontario, homeowners must be advised at least 45 days before a sale takes place.
  • In Prince Edward Island, it differs on a case by case basis.
  • In Newfoundland, Labrador and New Brunswick, lenders must provide a two-week notice.

Is purchasing a ‘power of sale’ home a good idea?

If a home is on the market through a power of sale, it doesn't necessarily indicate you’re getting a good deal or a reduced price. This is because lenders are required to sell the home at its current market value. Another thing to keep in mind is that the previous owner is not required to do any modifications or be accountable for any repairs because the home is being sold as-is. For this reason, buyers should be aware that they are responsible for repairing any issues that may arise in the home after they make a purchase.

At Homewise, we understand that purchasing a home is a significant life milestone. We want to provide future homeowners with the information they need to stay updated on the housing market and make the best decision. Our dedicated Mortgage Advisors help all Canadian buyers find the best mortgage that meets their financial needs. Apply online in less than five minutes.