Buying a Power of Sale Home in Leamington, As-Is Surprises

The situation

Devon, a police sergeant, and his sister Marcia, a physiotherapist, had been looking for a property to buy together in Leamington for over a year — something with enough space to split into two units, live in one, and rent the other. When a three-bedroom house came up listed as a power of sale at well under what comparable homes on the street had sold for, they moved fast. A power of sale is the standard route an Ontario mortgage lender uses when a borrower defaults: rather than going through a court foreclosure, the lender relies on a power written into the mortgage itself to sell the property and apply the proceeds against what is owed. It is faster and more common than foreclosure, but it changes who the buyer is dealing with and what that seller is prepared to promise.

The agreement of purchase and sale for the Leamington property was priced around $875,000 and, like almost every power of sale listing, sold the house as-is, where-is. The listing described the property as offering vacant possession on closing — meaning no one would be living there when Devon and Marcia took over. They had a mortgage pre-approval in place, a firm closing date about six weeks out, and no reason to doubt the listing. They brought the agreement to our office for review before signing, as a formality more than anything else.

The as-is risk

A lender selling under power of sale is not the same as an ordinary homeowner selling their own house. The lender, usually acting through the bank or mortgage company that holds the defaulted mortgage, generally has limited first-hand knowledge of the property's condition, its history, or who might be living in it. That is why these agreements are sold as-is, where-is and typically strip out the representations and warranties a buyer would expect from a private seller — no promise about the roof, the furnace, or even that the property is free of tenants. The burden of finding out shifts almost entirely onto the buyer.

Our review of the agreement flagged the vacant possession clause as worth double-checking rather than taking at face value, given how the property had come to be listed. A call to the vendor's lawyer — the lawyer acting for the lender exercising the power of sale — confirmed the concern: the previous owner had, at some point after falling behind on the mortgage, rented out part of the house to a tenant named Bilal to help cover the payments. That tenancy had never been disclosed to the listing agent and did not appear in the marketing materials Devon and Marcia had relied on.

This mattered because of how Ontario's Residential Tenancies Act, 2006 treats a change in ownership. A tenancy does not end because a property is sold, whether that sale happens through a private transaction, power of sale, or otherwise. A tenant's right to occupy the unit, and the terms of their existing lease, carry forward to the new owner as the new landlord. A vendor's lawyer cannot simply promise vacant possession and make an existing tenancy disappear — the tenant either has to move out voluntarily, be given proper notice under the Act with the required grounds and compensation, or the buyer takes the property subject to the tenancy and becomes the tenant's landlord on closing. None of those paths happens automatically, and confusing an as-is sale with an empty house is one of the most common — and most expensive — mistakes buyers make in a power of sale purchase.

For Devon and Marcia, the stakes were direct. Their plan depended on having both units available: one to live in, one to rent to a tenant of their choosing at a rent they set. If Bilal's tenancy carried forward, they would inherit a sitting tenant on whatever rent and terms the previous owner had agreed to, with no ability to simply ask him to leave for their own use without going through the Act's formal process — and even then, only in specific circumstances, with proper notice and compensation, and always with some risk of it being challenged.

What we did

1. Confirmed the tenancy in writing before relying on anything verbal. We wrote to the vendor's lawyer requesting written confirmation of Bilal's tenancy status: whether there was a written lease, what rent was being paid, whether it was a fixed-term or month-to-month arrangement, and whether the previous owner or the lender had taken any steps toward ending it. A phone call is not evidence a buyer can rely on if a dispute arises later.
2. Explained the two real paths forward, and the risk in each. Devon and Marcia could close with vacant possession only if the vendor's lawyer could actually deliver it — meaning the tenancy would need to be lawfully ended before closing, which is not guaranteed within a six-week window and is not something a power of sale vendor typically agrees to take on. Or they could close with the tenancy in place, becoming Bilal's landlord, and pursue their own use of the unit later only through the Act's own-use notice process, which requires a specific notice with compensation and carries a real chance of being contested.
3. Ran the standard as-is due diligence a power of sale demands. Because the vendor made no warranties about the property, we made sure a home inspection went ahead despite the as-is clause — inspection reports do not bind the seller to fix anything in a power of sale, but they tell a buyer what they are actually taking on. We also confirmed there were no unpaid property tax arrears, no second mortgages or other registered claims that would need to be cleared before the lender could deliver clear title, and that the statutory notice period the lender must give a defaulting borrower before completing a power of sale had already run its course, so the sale itself was not at risk of being unwound by a late redemption.
4. Negotiated the vacant possession clause instead of relying on it. Once it was clear the vendor could not confidently promise an empty house on the closing date, we went back to the vendor's lawyer and renegotiated. The agreement was amended to acknowledge the existing tenancy directly, with a closing price adjustment of about $18,000 to reflect that Devon and Marcia would be taking on a tenanted unit rather than the vacant one they had originally priced the deal around.
5. Laid out next steps for after closing. We advised Devon and Marcia on what a lawful own-use notice would require if they later decided to pursue it for the tenanted unit, including the compensation the Act requires and the realistic timeline — typically several months from notice to a tenant actually vacating, longer if the tenant challenges it. That let them decide, with real numbers in front of them, whether to pursue that route immediately or hold off and simply collect rent from Bilal in the meantime.

The outcome

Devon and Marcia closed on the Leamington property on schedule, at roughly $857,000 after the price adjustment, with full knowledge that Bilal's tenancy would carry forward and clear documentation of its terms. They chose not to pursue an own-use eviction right away. Instead, they moved into the vacant unit themselves and kept Bilal on as a tenant in the other, collecting rent from day one rather than losing months of income and legal cost trying to remove him immediately. They plan to revisit an own-use notice down the road if their plans change, now understanding exactly what that process requires.

The deal that looked, on paper, like a straightforward bargain turned out to need real negotiation before it closed — but because the tenancy was caught and priced into the agreement rather than discovered after closing, Devon and Marcia ended up with a fair adjustment instead of a legal fight or a closing they had to walk away from. The price they paid reflected what they were actually buying.

What you can learn from this