Power of Sale vs Foreclosure: What’s the Difference?

Power Of Sale

Table of Contents

If you fall behind on your mortgage payments, your lender can take legal action to force the sale of your home. This is because a mortgage is a form of secured debt with your property as collateral. They can recover the unpaid debt by repossessing your home and selling it on the open market.

In Ontario, mortgage lenders have two options to gain control of your home: the power of sale and foreclosure. Both legal proceedings yield the same result: your lender sells the property and uses the proceeds to settle the outstanding mortgage balance.

However, there are key differences between the two methods that you need to be aware of as a homeowner. Depending on which method your mortgage lender employs, the impact on your finances may differ.

In this article, we’ll explore how the power of sale and foreclosure work in practice, the impact of each on your home, and strategies you can use to steer clear of both.

How a power of sale works

Under a power of sale, your lender gains the right to evict you from your home and sell it to cover the outstanding debt. However, your home’s title remains in your name during the process. As a result, you still maintain complete ownership rights over your property.

A power of sale is the most common way for a lender to force the sale of a home where the borrower cannot pay the mortgage. It appeals to lenders because it’s cheaper to implement and resolves more quickly than a foreclosure.

Here’s how a power of sale works step by step:

Step 1: Your lender will send you a letter informing you that you’re in default on your mortgage and offer a chance to get your account in good standing.

Step 2: If you fail to catch up with your payments, your lender will deliver you a Notice of Sale. This document states that they plan to settle the unpaid debt by selling your home. Your lender can issue a Notice of Sale 15 days after your first missed payment.

Step 3: Once your lender has delivered the Notice of Sale, they’ll provide you with an opportunity to repay the past-due amount. This time frame is known as the “redemption period” and usually lasts 30 to 45 days.

Step 4: If you still haven’t settled your mortgage arrears during the redemption period, your lender will obtain a court document called the Statement of Claim. This document is necessary for a lender to legally assume control of a home and sell it. At this point, you’ll have a set time to file a Statement of Defence explaining why you don’t owe the money.

Step 5: If you don’t file a Statement of Defence, your lender will obtain a default judgment from the court, which means they win the case. Following the judgement, they’ll bring a motion to issue a Writ of Possession, which gives them the right to evict you from your property.

Step 6: Your lender will send the Writ of Possession to the Sheriff. In turn, the Sheriff will assign a date on which you must vacate the property.

Step 7: Your lender will place your home up for sale. Once it’s sold, they’ll use the proceeds to cover the outstanding mortgage balance.

How a power of sale impacts your home and finances

As mentioned, your lender receives only the right to sell your home under a power of sale. You still retain ownership of the property, including the home equity.

Let’s say the sales proceeds exceed the remaining mortgage balance. In that case, the profit is yours to keep. Conversely, if the property sells at a loss, your mortgage lender can sue you to recover the deficit. The shortfall becomes an unsecured debt since there’s no longer any asset that functions as collateral.

In a power of sale, the lender must sell the property for fair market value. They cannot offer a deep discount to rush the sale. If they do so and you lose your home equity, you can pursue legal action against them.

How foreclosure works

Under a foreclosure, your home’s title is transferred to your mortgage lender. Consequently, you surrender all ownership rights over your property, including the home equity. As with a power of sale, your lender can sell your home to recover the unpaid debt.

Foreclosures aren’t as common in Canada as power of sales. The legal proceeding is tedious, expensive, and more heavily involves the court. These aspects discourage most lenders from choosing foreclosure to repossess a property.

The procedure and documents involved in foreclosure are similar to those of a power of sale: the process begins with a letter demanding payment of mortgage arrears and ends with a Writ of Possession to evict you from your property. The court also grants you a redemption period during which you can catch up on your payments.

Though foreclosure proceedings resemble those of a power of sale, the former takes more time to resolve.

Typically, your lender will initiate foreclosure proceedings after you’ve missed two or three months of mortgage payments. In contrast, they can begin a power of sale just 15 days after you fail to make a scheduled payment.

In addition, the redemption period in foreclosure can last up to six months, far longer than in a power of sale, which spans 30 to 45 days.

The prolonged nature of a foreclosure proceeding means the entire process can take between six months and a year to complete.

How foreclosure impacts your home and finances

In a foreclosure, your mortgage lender gains complete ownership of your home. As such, they assume all the benefits and risks of owning the property.

If your lender sells your home for more than the outstanding mortgage balance, they get to keep the entire profit. Since you have no ownership stake in the property, you don’t get a share of what’s left after the mortgage is paid off. This aspect is one of the primary downsides of foreclosure – as the homeowner, you lose both your property and the equity you’ve built up since first purchasing it.

Alternatively, if your lender sells the property for less than the remaining mortgage balance, they have no choice but to absorb the loss personally. They cannot sue you to recover the shortfall.

What can you do to stop a power of sale or foreclosure?

Below are some methods you can explore to reign in your debt and improve your financial situation. With the right strategy, you can avoid losing your home to a power of sale or foreclosure.

Extend your amortization period. Suppose your lender will allow you to increase your amortization period. In that case, your mortgage principal will be spread over a longer period. The result is smaller and more manageable payments.

Refinance your mortgage. Do you have a substantial amount of equity in your home? If so, refinancing your current mortgage with a larger principal to pay off your existing balance can be a wise move. This strategy can work if you secure a low interest rate and have enough room in your budget to keep up with payments.

Apply for a Home Equity Line of Credit (HELOC). A HELOC can provide a much- needed cash infusion, allowing you to catch up on your payments. However, as with refinancing, you’ll need to have considerable home equity (usually 20%) and good credit to qualify, which may prove challenging if you’re struggling with debt.

File a consumer proposal. A consumer proposal allows you to negotiate a reduced payment plan with creditors for your unsecured debt, like credit cards and lines of credit. By alleviating the pressure of high-interest debt on your budget, you’ll have more money available to dedicate to your mortgage.

File for bankruptcy. Depending on your circumstances, filing for bankruptcy may be more suitable than a consumer proposal to get your unsecured debt under control. Bankruptcy wipes out unsecured debt obligations completely.

Is your mortgage lender threatening to take away your home? If so, get to know your options by speaking to a Licensed Insolvency Trustee

As a homeowner, discovering a notice of sale or foreclosure in your mailbox can elicit immediate fear and anxiety. These feelings aren’t unreasonable, as your home is likely the most significant asset you own. Losing it can be financially and emotionally devasting.

For many homeowners, high-interest unsecured debt obligations hamper their ability to service their mortgage. If this scenario describes you, filing for a consumer proposal or bankruptcy can help get this crippling debt under control.

Bankruptcy and consumer proposal are federal government programs designed to help individuals legally and safely discharge unsecured debts. They can only be administered under the authority and guidance of a Licensed Insolvency Trustee.

A consumer proposal will enable you to negotiate a new repayment plan with your creditors – you’ll have the opportunity to reduce your debt load by up to 80%. Alternatively, you can eliminate all of your unsecured debt by filing for bankruptcy.

Neither program directly prevents a power of sale or foreclosure. But they’ll leave you better off financially to tackle your mortgage debt – and save your home from repossession in the process.

Not sure which program works best for you? A Licensed Insolvency Trustee can assess your situation and recommend the choice that will leave you better off financially. They’ll do all the heavy lifting to get your finances in shape, including negotiating with creditors on your behalf. With their knowledge and expertise, you can better escape the clutches of a power of sale or foreclosure.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt, call us at 1-844-962-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

Share This!

Great experience i was in financial trouble and someone of my friends recommended this company. Cori is a wonderful and welcoming person she did a very good job and came up with a smooth and flexible monthly payment after the reduction. i highly recommend this company. Thank you David sklar and special thanks to Cori.❤️🙏🏻
Jasmine Joseph
22:08 13 Jan 23
Met up with Mr. Jason Sklar to discuss more in person, very thorough and clear. He is very kind and thoughtful, I will be referring anyone with the same situation to David Sklar & Associates.
Ariel Domingo
02:33 29 Dec 22
I was a reck talking yo Jason Sklar was easy comfortable he explained everything and put my mind at ease I would recommend the team od sklar to everyone. I have already talked to my ci workers about them
kevin mcweeney
01:13 22 Dec 22
The team at David Sklar & Associates is fantastic.I worked with Jerry whom not only made - what seemed like intimidating process to initiate at first - comfortable.He made everything transparent and took the time to explain the process every step of the way.He was kind, attentive, and professional. Everything was made straightforward and stress free and we found a solution together that worked.Thanks to Jerry and the team.
Jordie Angiolillo
18:22 21 Dec 22
From day one till the end which is today😁 DavidSklar gave me a 5star service and treatment. And I will 100% recommend him and his Associates. This is the best Christmas present ever! Thank you David! More business to come! Merry Christmas and a Happy New Year!!!
barbee diaz
16:37 16 Dec 22
bruce burg
21:35 02 Dec 22
Jerry was wonderful and provided superb service. He is very knowledgeable, trustworthy, and made an intimidating and shame filled time in my life stress free. I hesitated for a long time to take the next step, but Jerry answered all questions, was patient and made the process effortless. I am eternally grateful, and highly recommend Jerry’s services.
18:41 01 Dec 22
Jerry was professional and was easy to deal with
Debbie Asquith
00:09 29 Nov 22
I was quite nervous and a little embarrassed that I needed financial advice. I met with Jerry Janiec and he was very helpful. He made me feel comfortable and explained everything in easy to understand terms so that I understood what my options were. I would recommend David Sklar & Associates for anyone in my position.
Melissa Blackburn
19:53 17 Nov 22
I was fortunate enough to be referred to David Sklar & Associates Inc. by a family member. Now in the10th month of a Consumer Proposal process, I am very impressed with the organization, professionalism and impeccable customer representation that I have experienced. To this effect, I amparticularly thankful to Jerry Janiec and Rhoda Lewis for their excellent work.
Suzanna Vaclavik
12:21 16 Nov 22
DS david skalr icon

Book your free consultation.

Call 1-844-962-9200 or fill out the form below.

We know this is stressful, but you’re not alone. It’s going to be okay. 
Book your free consultation today. We’ll do the rest.

Contact Us