What's the difference between power of sale vs foreclosure?

Many Canadian homeowners are feeling financial pressure from higher living costs and mortgage renewals at rates above what they locked in years ago. Missed payments can lead to mortgage default—and in some cases, the risk of losing your home.  

One legal process lenders may use in this situation is called power of sale. But what exactly does power of sale mean, how is it different from foreclosure, and what steps can you take to avoid it? 

Here’s what you need to know. 

What does power of sale mean? 

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 begin to formally pursue either power of sale or foreclosure. 

Both power of sale and foreclosure are legal remedies that allow lenders to recover unpaid debt by selling the property. Although these two terms are sometimes used interchangeably, there are some key differences between power of sale and foreclosure. Understanding these differences can help you make informed decisions if you ever face this situation. 

Read more: Six common mistakes first-time homebuyers make 

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

The primary distinction between power of sale and foreclosure is the degree of agency homeowners have. 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, CEO and president of NorthLend Fiancial,  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. 

Read next: Want to pay off your mortgage sooner? Try accelerated payments   

The process of power of sale 

The power of sale process begins when a mortgage goes into default. Default often occurs after a missed payment—typically within 30 days, though timelines can vary by lender. Once in default, the lender can issue a Notice of Sale Under Mortgage after an additional 15 days. From that point, borrowers generally have 45 days to contact their lender and arrange to pay back the balance. 

“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 rules vary by province, the entire process can take as little as two to three months to complete—making speed and communication critical. 

Read more: Larger homes are top moving motivator amid economic uncertainty: Survey 

Avoiding power of sale 

For most homeowners, power of sale is a risk—not a certainty—but if you’ve received a notice, acting quickly can make all the difference. 

Start by contacting your lender or the Financial Consumer Agency of Canada (FCAC) directly if you are experiencing difficulty with your mortgage payments. The FCAC expects banks to provide tailored support to borrowers who are struggling financially. 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.” 

Other options may include: 

• Extending your amortization period to reduce monthly payments. 
• Applying for a mortgage payment deferral to buy time before your next payment. 
• Refinancing to leverage your home equity and potentially lower your payments. 

Losing your home due to mortgage default is a nightmare scenario, but the earlier you act, the more choices you have. Start by speaking with your lender to determine the best path forward. 

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