Power of sale vs foreclosure in Ontario: why lenders pick one, and when you would want the other

People use the two words as if they meant the same thing, and the outcomes are opposites. Under power of sale the lender sells your house, keeps what it is owed, returns the rest, and can sue you if the price fell short. Under foreclosure the lender keeps the house, keeps every dollar of equity in it, and gives up the right to chase you for anything more. Which one you are facing changes what you should do about it.

Power of sale is a clause in the mortgage, regulated by Part III of the Mortgages Act↗. It does not need a court. After fifteen days of default the lender gives a Notice of Sale, waits thirty-five days, then lists and sells the property as if it were the owner. The proceeds go first to the lender's costs, then to the mortgage debt, then to any later mortgagees and executions, and whatever is left is yours. How power of sale works walks through each step.

Because the lender is selling your asset, it owes you a duty to take reasonable precautions to get fair market value. And because the debt survives the sale, the lender can sue you on the covenant to pay for whatever the sale did not cover. Those two facts are connected: an improvident sale, one made without an appraisal, without proper marketing, or to an insider, is the defence to a shortfall claim.

Foreclosure is a court action under rule 64 of the Rules of Civil Procedure↗. The lender issues a statement of claim in the Superior Court naming you and everyone with an interest in the equity of redemption. If nobody responds, the registrar signs a judgment for foreclosure and, after the redemption period the judgment fixes runs out, a final order of foreclosure transfers title to the lender. The lender now owns the house outright. It can live in it, rent it, or sell it, and if it sells for twice what you owed, the surplus is the lender's.

The trade is that the mortgage debt is extinguished. A lender that has foreclosed has taken the property in satisfaction of the debt and cannot sue you for a shortfall. The old equitable rule is that a lender who later sues on the covenant reopens the foreclosure, and if it has already sold the house it cannot do that. Foreclosure ends the relationship. Power of sale can leave you owing money on a house you no longer own.

• Court: power of sale needs none. Foreclosure is a lawsuit from the first day.
• Time: power of sale can close in two or three months. Foreclosure takes six months at the fastest and often more than a year, because every later encumbrancer gets a chance to redeem.
• Equity: under power of sale the surplus after the debt and costs comes back to you. Under foreclosure the lender keeps all of it.
• Shortfall: under power of sale the lender can sue you for the difference. Under foreclosure it cannot, unless it reopens the foreclosure, which it cannot do once it has sold.
• Your options during it: under power of sale, section 22 lets you reinstate by paying the arrears and costs until the sale or the start of an action. In a foreclosure action, rule 64.03 lets you file a request to redeem or a request for sale within the time for a defence, or at any time before you are noted in default.
• Cost: power of sale costs the lender a lawyer's letter, a realtor and a statutory declaration. Foreclosure costs it a court file, a reference and months of interest with no cash coming in.

Speed is the first reason. A bank's collections department is measured on how fast a non-performing loan comes off the books, and fifty days beats a year. Money is the second. In a rising market foreclosure can be a windfall, and the lender would keep the equity. In a flat or falling market, which is when defaults cluster, the lender wants the debt paid and the right to sue for the rest, and only power of sale gives it that. The third reason is that foreclosure invites every later mortgagee and execution creditor into the action with a right to redeem, and a private second mortgagee will often do exactly that.

The result is that a homeowner in Ontario reading about foreclosure, which is the American word and the American process, is almost always reading about the wrong remedy. The letter in your hand says Notice of Sale. The timeline is fifty days, not a year. And the lender is coming for the shortfall afterwards.

When the house is worth less than the mortgage. If the sale will leave a shortfall you cannot pay, a foreclosure that extinguishes the debt is a better outcome than a power of sale followed by a judgment against you. A borrower in that position can sometimes negotiate it: a deed in lieu of foreclosure, where you transfer the house to the lender in exchange for a release of the debt, or a consent judgment for foreclosure in a rule 64 action. Lenders resist it in a falling market for the same reason they prefer power of sale, and a lawyer's leverage is the cost and delay of the alternative.

A borrower who has been sued for foreclosure can also turn it into a sale. Rule 64.03 lets a defendant serve a request for sale, which converts the action into a sale under the court's supervision. That is worth doing when there is equity in the house, because a judicial sale returns the surplus to you where a foreclosure would give it to the lender. The request has to be filed within the time for a defence or before you are noted in default, and the deadline is the same twenty days as any other statement of claim.

When there is a lot of equity, the borrower is judgment-proof, and the market is rising. A private lender holding a first mortgage of $400,000 on a house worth $900,000, with a borrower who has no other assets and no income to garnish, gains nothing from a shortfall claim and a great deal from owning the house. That lender may issue a foreclosure claim instead of a Notice of Sale, and the borrower's answer is the request for sale, which forces the equity back onto the table.

Rule 64.04 also provides for an action for sale, where the court rather than the lender conducts the sale, usually through a reference. It is slower and more expensive than power of sale and is used when the title is complicated, when the lender wants the protection of a court-approved price, or when a borrower has converted a foreclosure. The proceeds are applied in the same order as a power of sale and the surplus comes back to you.

Whichever route the lender takes, the fifteen and thirty-five day periods of a power of sale and the twenty days to answer a statement of claim are the deadlines that decide the outcome. The power of sale timeline lays the first set out from your missed payment, and what to do when a statement of claim arrives covers the second.

Everything above is the law as it stands in August 2026.

Reading which remedy the lender has chosen, and whether the other one would serve you better, is the first thing a lawyer does with a mortgage file, and it changes the advice. If a lender has started either process against you anywhere in the GTA or Ontario, Telesh Law Firm Professional Corp can tell you which one it is and what it means, and you can read more about how we handle civil litigation.

• Ontario courts
• Cost & fees

This article is general information, not legal advice, and does not create a solicitor-client relationship. It is current as at its publication date and is not revised as the law changes. For advice on your specific situation, book a consultation or call 416-639-0887.

Written by

Caleesis Telesh

Founder & Principal Lawyer

LL.B. · B.A., York University · Member, Law Society of Ontario

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