Power of Sale in Ontario: What Homeowners and Buyers Need to Know

The short answer: A power of sale is a sale by a lender after a homeowner defaults on mortgage payments, using a right granted in the mortgage. In Ontario, buyers can purchase these properties, but they are sold "as is" at fair market value, not necessarily at a bargain, so have a real estate lawyer review the contract.

Every sector of the Canadian economy has felt the effects of higher interest rates, but few as sharply as real estate. When the prime interest rate rises, household budgets take a hit. Following the recent rise in rates, we saw more power of sales in Durham Region, something that had been relatively uncommon up until then.

What is a power of sale in Ontario?

A power of sale is a forced sale by a lender who has been granted the right to sell a property because the homeowner has defaulted on their payments.

It typically happens when the lender has exhausted its options to receive payment from the homeowner, or when the homeowner has repeatedly defaulted and the only way forward is to work with the lender to sell the property.

How does a power of sale work?

The process gives the borrower many opportunities to stop the sale. In general:

1. The homeowner defaults on their mortgage payments.
2. The lender gives formal notice. The lender must provide the required notice to the homeowner that it is moving toward a power of sale, before listing the property. The notice gives the homeowner a set period of time to fix the default.
3. The homeowner has options. They can bring the mortgage back in good standing, pay it off through a refinance, or sell the property themselves.
4. If the default isn't resolved, the lender lists and sells the property.
5. The sale proceeds are distributed. The lender is made "whole," meaning it receives back the funds it lent to the homeowner. Any second mortgages are paid next, and anything left over goes to the homeowner.

Can you buy a power of sale property in Ontario?

Yes. But there are a few things to keep in mind:

• It doesn't mean you're getting a "deal." The lender is obligated to sell the property at fair market value.
• You're buying the property "as is." The lender, who is the seller in this case, accepts no liability for the condition of the property, the chattels, or the fixtures.
• The contract is very different from a standard property sale contract. These sales are complex, and you need a trusted real estate lawyer to review the contract before you sign anything.

How is a power of sale different from a regular resale?

What should buyers do before purchasing a power of sale property?

1. Have a real estate lawyer review the contract before you sign anything.
2. Understand what "as is" means. You'll be responsible for the condition of the property, its chattels, and fixtures.
3. Set your expectations on price. Don't assume it's a bargain, since the lender must sell at fair market value.
4. Ask your lawyer what's included in the sale. This covers chattels and fixtures as well as the property itself.

What can homeowners do if they're facing a power of sale?

If you've fallen behind on your mortgage, you generally have options before the property is sold:

• Get your mortgage back in good standing.
• Refinance to pay off the mortgage.
• Sell the property yourself.
• Speak with a real estate lawyer early, so you understand your rights, the notice you've received, and the timeline you're working with.

Are there power of sale properties in Durham Region?

Yes. A luxury home in Oshawa made the news when it sold as a power of sale at an $800,000 loss in market value over two years. According to DurhamRegion.com, the owners bought it for $2,550,000 in March 2022, when the market was hot and interest rates were low, and later couldn't keep up with the payments.

McMurter & Associates was not involved in this transaction, but we've seen variations of the same story. Mortgage payments jumped when the prime interest rate rose, especially for homeowners locked into a variable-rate mortgage.

Contact

Brian McMurter is a real estate and estate planning lawyer at McMurter & Associates in Whitby, helping Durham Region, Ontario residents with estate planning and real estate law. 

Contact McMurter & Associates Monday to Friday, 9 a.m. to 5 p.m. at info@mcmurter.com or call 1 800 756 7138 or 905 666 9200 to schedule a consultation.

Disclaimer: This article provides general information about Ontario law and is not a substitute for legal advice. Please speak with a lawyer about your specific circumstances before making decisions about real estate law and estate planning.