What is different about buying a power of sale property in Ontario?

How a power of sale works

When a borrower defaults, most Ontario mortgages let the lender sell the property without a court order. Under section 32 of the Mortgages Act a notice of sale cannot be given until the default has continued for at least fifteen days, and the sale cannot take place until at least thirty-five days after the notice. The lender must act in good faith and take reasonable steps to obtain a fair price, and any surplus after the debt and costs goes to the owner and subsequent creditors.

The property is usually listed with an agent like any other, but the seller is the lender, and its schedule of terms replaces much of the standard form.

The owner's right to redeem, and your agreement

Section 22 lets the borrower stop the process by paying the arrears and the lender's costs before the sale. Power of sale agreements therefore say the deal is subject to the owner's right to redeem: if the owner pays up before closing, your agreement ends, your deposit comes back and you have no claim for damages.

The lender's schedule also typically sells the property as is, where is, gives no warranty on chattels or condition, disclaims the seller's usual statements, and may not promise vacant possession. Read it before you offer; the standard clauses you are used to may have been struck out.

Inspection and condition

No one at the lender lived in the home, so there is no seller disclosure and no one to answer questions about the furnace or the roof. Utilities may be off and the home winterised, which limits what an inspector can test. An inspection condition is still possible in many power of sale deals and worth asking for; budget for repairs and confirm insurance can be obtained before waiving. Chattels left behind may not be yours; the agreement decides.

Title and possession

A sale under a mortgage conveys title free of interests registered after that mortgage, but subject to anything registered before it, so we search for prior mortgages, liens and executions and confirm which are cleared. Property tax arrears are paid from the proceeds. The lender's lawyer delivers the transfer and the statutory declarations the Mortgages Act requires.

Possession is the practical risk. If the former owner or a tenant is in the home, the lender may sell subject to that occupancy. A tenancy continues under the Residential Tenancies Act with the lender, and then you, as landlord. Removing a former owner who refuses to leave needs a court order, and the agreement should say who obtains it.

Price, timing and where a lawyer helps

Power of sale listings are not always bargains; the lender must seek fair value and often does. Lenders can be slow to accept and quick to extend closing on their own terms. We review the lender's schedule before you sign, search title for what will survive the sale, confirm whether vacant possession is promised, and arrange title insurance that responds to the risks a power of sale carries. Our fee is a published flat fee, the same as any purchase.