Judicial Foreclosure vs Power of Sale: Why Alberta Uses Court

You may have heard that in some places a lender can sell a home without going to court, often called power of sale. People then wonder whether that can happen to them in Alberta.

In Alberta, foreclosure goes through the court. This article explains what that means and where the exceptions are, so you know what protections may apply to your mortgage.

This article covers the law of Alberta.

What power of sale means

Power of sale generally means a lender can sell the property under a clause in the mortgage or a statute, without a court order. Judicial foreclosure means the lender must ask a court to supervise the process.

How Alberta handles it

Foreclosure is governed by Part 5 of the Law of Property Act and the Alberta Rules of Court, and proceedings to recover money secured by a mortgage are taken in a court of competent jurisdiction. A lender's right in an action on a land mortgage is restricted to the land the mortgage relates to, and the Act does not give a separate non-court power of sale route.

In practice, the court order nisi must provide that if you do not pay as ordered, the land is to be offered for sale at a time and place the Court sets. If the sale fails, the Court may order it offered again or make a vesting order. Foreclosure matters may be heard by Applications Judges in Court of King's Bench chambers.

Protections built into the court route

• Sale first: in an order nisi the Court must provide that, if you do not pay as ordered, the land is to be offered for sale, although this requirement does not apply where you consent, and the Court may make a vesting order without first offering the land for sale in some cases, such as abandoned land.
• No suit on the covenant: an action on the covenant for payment in the mortgage is barred, subject to exceptions.
• Redemption period: 6 months for non-farm land and one year for farm land, which the Court may shorten or extend.
• Waivers do not work: any waiver or release of the s. 40 protections is void.
• Notice: if you file a statement of defence or demand for notice, you must be served with the lender's applications.

When the usual protections do not apply

Sections 40 and 41 do not apply to a mortgage given by a corporation. They also do not apply to a National Housing Act mortgage or a high-ratio mortgage insured by a licensed mortgage insurer, and for those the lender may sue on the covenant. That exclusion also extends to renewals and to earlier mortgages.

The sale-first and redemption rules also do not apply where you consent to the order. An individual who is a transferee of corporate-given mortgaged land does keep the protection. Whether these exceptions apply to your mortgage depends on its terms and insurance, so a lawyer can confirm.

If sale proceeds fall short of the debt, the question is whether the lender can claim the shortfall from you. A lender on an ordinary individual's residential mortgage generally cannot sue on the covenant for payment. These protections apply only to residential land and farm land. They do not apply to an individual who never used the land, and whose family never used it, as a residence while registered owner, such as an investment or rental property, and the individual must show they are not excluded. A guarantor or corporate co-borrower can still be pursued for a shortfall.

Steps in a court foreclosure

The Rules of Court set out steps the lender must follow. A statement of claim must be served on the defendant within one year after it is filed, and the Court may extend that by no more than 3 months. The time to file a statement of defence is 20 days if you are served in Alberta, one month if served elsewhere in Canada, and two months if served outside Canada.

• If a defendant files neither a statement of defence nor a demand for notice, the lender must note the defendant in default before applying for personal judgment or a remedy under rule 6.5(2).
• Before applying for a redemption order or foreclosure order, the lender must file a certified copy of all current titles to the land, plus a current Personal Property Registry search if chattels are included.
• An affidavit of value must be filed before applying for a redemption order, an order that the property be offered for sale, a foreclosure order, an order confirming sale or an order of possession, although the Court can order otherwise.
• The Court may offer secured property for sale at a time and place, in a manner and at a price it considers appropriate.
• Before the final order is entered, the lender files and serves the statement of secured indebtedness, sale proceeds, any deficiency calculation, bill of costs and proposed order, and an assessment officer checks and corrects the amounts.

Once an order of foreclosure is made absolute, it vests title in the lender free of your right of redemption, satisfies the debt, and entitles the lender to a certificate of title. Before the land is sold under an order for sale, an order nisi may be relieved against by postponing the day fixed for redemption. How long each stage takes depends on the facts and on the Court, so a lawyer can explain what to expect in your case.

What to do next

• Find out whether your mortgage is insured, and whether you or a corporation signed it.
• Read any court papers carefully before consenting to any order.
• Note your response deadline from the date of service.
• Speak to a lawyer about your options, including selling or refinancing.

Frequently asked questions