Power of Sale vs. Foreclosure in Ontario: Key Considerations for Mortgage Lenders

In times of economic uncertainty, mortgage lenders often place renewed focus on protecting their investments and minimizing exposure to loss. When a borrower defaults on a mortgage, a lender must decide how best to enforce its security and realize on the mortgaged property.

In Ontario, lenders generally have two primary enforcement options: power of sale or foreclosure. While both remedies are designed to address mortgage default, they operate very differently and carry distinct legal, financial, and strategic implications. The appropriate remedy will depend on several factors, including market conditions, the value of the property, and the lender’s long-term objectives.

Power of Sale

A power of sale is the most commonly used mortgage enforcement remedy in Ontario. It is largely an out-of-court process, allowing a lender to sell the mortgaged property without first obtaining a court order, provided the mortgage and statutory requirements are met.

When a property is sold under power of sale, the sale proceeds are applied to the outstanding mortgage debt and any other registered encumbrances in priority, as required under the Mortgages Act. If funds remain after all secured claims are satisfied, the surplus is returned to the borrower or other parties with a valid interest in the equity.

If the sale proceeds are insufficient to cover the debt, the borrower — and any guarantors — remain liable for the deficiency. Because the borrower’s financial exposure depends on the sale outcome, the lender is required to act in good faith, take commercially reasonable steps to market the property, and provide a full accounting of the sale.

Power of sale is often preferred where the lender wishes to liquidate the asset efficiently and pursue any remaining shortfall.

Foreclosure

Foreclosure is a court-driven remedy that results in the lender acquiring title to the property in full satisfaction of the mortgage debt. Once foreclosure is granted, the borrower’s equity of redemption is extinguished.

Unlike power of sale, foreclosure eliminates the lender’s ability to pursue the borrower for any deficiency. At the same time, the lender is entitled to retain any equity in the property. Because the lender becomes the owner rather than a seller, there is no obligation to account to the borrower or to other encumbrancers for surplus value.

Foreclosure can be attractive where property values have declined and the lender believes there may be long-term upside through holding, redeveloping, or later selling the property. It may also reduce opposition from borrowers who benefit from being released from further liability.

Risks and Challenges of Foreclosure

Despite its advantages, foreclosure is often met with resistance. Since foreclosure cuts off the rights of borrowers and other interested parties, it is frequently challenged, leading to increased legal costs and delays.

A foreclosure action is commenced under Rule 64.03 of the Rules of Civil Procedure. The lender must name all parties with an interest in the equity of redemption — including the borrower, subsequent mortgagees, lien claimants, and execution creditors — as defendants.

If no defence is filed, the lender may obtain an order for foreclosure and take title to the property, subject to payment of land transfer tax like any other purchaser.

However, defendants may attempt to preserve their interest by filing a Request to Redeem or a Request for Sale. A Request to Redeem allows a defendant to pay out the mortgage and end the foreclosure process. A Request for Sale converts the proceeding into a court-supervised judicial sale.

Judicial sales are significantly more time-consuming and costly. The court oversees all aspects of the sale process, including listing terms, pricing, commissions, and acceptance of offers. Importantly, once converted to a sale, the lender loses the primary benefit of foreclosure — the ability to retain any equity in the property.

Choosing the Right Enforcement Strategy

In Ontario, power of sale remains the default enforcement method for most lenders. However, changing market conditions, declining property values, or strategic considerations may make foreclosure a viable alternative in certain cases.

Because the consequences of each remedy differ substantially — particularly with respect to liability, recovery, timing, and court involvement — lenders should seek legal advice early when deciding how to proceed after a mortgage default.



An informed strategy at the outset can significantly affect recovery, risk exposure, and overall enforcement costs.