What is power of sale?

Soaring interest rates and the increased cost of living are leaving many households across Canada feeling squeezed. While the risk of a forced sale can sometimes be overstated, it’s important to be aware of both the potentials and the steps we can take to protect ourselves.

What is power of sale? 

Power of sale is one possibility that lenders may pursue in the event that a homeowner defaults on their mortgage. Default means breaking one or more of the basic terms of agreement of your mortgage, such as missing a regular payment. 

Borrowers will be quickly notified if they have defaulted on their loan, and a power of sale can be notified in as little as fifteen days after formal default. From there, generally borrowers will have at least thirty days more to respond before lenders will begin to formally pursue either power of sale or foreclosure.

Both processes are important mortgage clauses, facilitating the lender’s recovery of unpaid debt by selling the property as quickly as possible. And although these two terms are sometimes used interchangeably, there are some key differences between power of sale and foreclosure.

What’s the difference between a power of sale and a foreclosure?

The primary distinction between power of sale and foreclosure is the degree of agency homeowners retain. In foreclosure, the lender seizes title of the property and borrowers have little to no control over the results of this process.

Power of sale, in comparison, leaves homeowners with a slightly better chance of keeping their home — but time is an important factor.

According to Jason Anbara, founder & principal mortgage broker of Ottawa-based Jason Anbara Mortgages, most people tend to prefer power of sale rather than a foreclosure because of how quickly it can be completed.

“Foreclosure itself is a legal process where the lender files a claim to take possession of the home before selling or auctioning, and the homeowner must respond within the designated period,” he adds. “A redemption order can be granted in some cases, which gives the borrower time to catch up on their mortgage, but not without penalties.”
While power of sale is a non-judicial process, foreclosure occurs exclusively through the courts. This makes it a much more tedious process, and for this reason lenders in Canada generally prefer to execute power of sale to quickly recoup their loan.

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The process of power of sale

The process of a power of sale begins when a mortgage goes into default. Typically, default is triggered thirty days after a missed payment. Then a lender can send a Notice of Sale Under Mortgage after a further fifteen days. From then on, you’ve got forty-five days to get in touch with your lender and figure out an agreement to pay back the balance, if you haven’t already done so.

“From the day they receive the Notice of Sale, borrowers will have forty-five days before their lender can take any further steps,” says Anbara. “This would be a good time for the borrower to consult their lender and a mortgage broker to see what they can do to remedy the situation.” 

During this period, homeowners should be looking to pay off their owed balance as soon as possible to bring the mortgage back into good standing, he adds.

If you have defaulted on your mortgage payments and are facing the threat of power of sale, it’s vital to respond as quickly as possible and consider seeking professional help.

In addition to the homeowner and the lender, the power of sale process usually also involves legal personnel on both sides. If the homeowner doesn’t have legal representation, they will often enlist the help of a mortgage broker or agent in order to stop the power of sale.

While the rules around forced sale proceedings can differ slightly between provinces, generally speaking the power of sale process can take as little as two to three months to complete.

Avoiding power of sale

It’s important to note that for the majority of listings, power of sale is a warning, rather than a distinct threat to all primary-residence homeowners. However, if you have been notified about your lender’s intention to invoke a power of sale, there may be steps you can take to prevent it.

First of all, you can contact the Financial Consumer Agency of Canada (FCAC) or your lender directly if you are experiencing difficulty with your mortgage payments. The FCAC expects banks to provide tailored support to borrowers who are struggling financially. Reach out to your lender if you’re feeling the strain. A proactive attitude here can make a big difference.

Beyond direct support from your lender, a second mortgage might also help to prevent a power of sale, according to Anbara.

“Usually, lenders are willing to cut deals as both power of sale and foreclosures are costly,” he says. “Contact your lender as soon as you have defaulted, or preferably before, to try and work out a payment plan.”

Your options may include extending your amortization period or applying for a mortgage payment deferral, which could buy you some time before your next mortgage payment. You may also be able to refinance to take advantage of your built-up equity and potentially lower your mortgage payments.

Losing your home due to mortgage default is a nightmare prospect for many homeowners. However, the earlier you can start avoiding it, the more options you have. The first thing you should do is to speak to your lender to figure out the best course of action.

Read next: What’s a mortgage default, and how do you avoid it?