For a layperson, a power of sale and a foreclosure my appear to be one and the same – the terms are often used interchangeably. However, there are distinct difference between the two within the province of Ontario, not only in terms of costs and timeframe, but also the process and the rights of the Borrower(s) and Lender, respectively.
In Ontario, a Power of Sale is the more common enforcement mechanism utilized by lenders in the event of mortgage default for a multitude of reasons. Under a Power of Sale, the lender is granted the right to sell the property without the Borrower’s cooperation and/or authorization to recover its debt.
In a Foreclosure, the Lender applies to the Court to obtain ownership of the property itself in lieu of the debt owed to it. There is no requirement for the Lender to sell the property in a Foreclosure.
Foreclosure is initiated by the Lender through a Statement of Claim. Whereas, a Power of Sale is triggered by a Notice of Sale to the homeowner. Foreclosure is entirely Court-supervised and is a much lengthier and costly process compared to a Power of Sale.
A Power of Sale can be completed from the initial stages of a Notice of Sale to receiving possession within 6 months or less from the date of default, while a Foreclosure usually takes up to a year or longer to be completed. This difference in time, in addition to the variances in the legal proceedings between the two, results in Power of Sale to be significantly less expensive.
The Borrower is entitled to receive any surplus sale proceeds upon the completion of the sale of property and payment of all registered debts in a Power of Sale. Vice-versa, a lender also has the right to sue the Borrower personally for any remaining debt in the event that the sale proceeds are insufficient to payout the entire balance of the debt owed. The Borrower also has the right of redemption in a Power of Sale until the day of closing. This means that the Borrower may cancel the entire proceeding by paying out the outstanding debt and associated costs before the sale is completed.
In a Foreclosure, the debt is considered paid completely upon the lender’s possession and ownership of the property. The Borrower is not entitled for any surplus of sale proceeds even if the Lender chooses to sell the property immediately afterwards. Similarly, the Lender is also not authorized to sue the Borrower personally or otherwise in the event that the property value is less than the debt owed to it. Courts are also reluctant to authorize a Foreclosure in cases where the property value is significantly more than the debt owed to avoid there being a windfall to the Lender.
As such, a Power of Sale process is the preferred option within Ontario due to the costs associated with the respective processes and the rights granted onto both parties.
At Wards Lawyers, we represent institutional and private lenders in mortgage enforcement. If you have any questions or need assistance, we’re here to help – [email protected]. This WARDS LAWYERS PC publication is for general information only. It is not legal advice, nor is it intended to be. Specific or more information may be necessary before advice could be provided for your particular circumstances.
