There was a moment in time when it seemed every HGTV show pictured investors buying foreclosure properties at half their value, renovating them, and selling them for a huge profit. It caused a bit of a stir in the GTA, especially given our high home prices. Buyers thought: “Where are our half-priced foreclosure properties?!”
The thing about living in a high-demand area like the GTA is that we don’t really have “cheap” Power of Sales or foreclosures. The legal framework in Ontario’s Mortgages Act protects homeowner equity. Pair that with high buyer demand, and almost all Power of Sales sell close to market value. Do they sometimes sell a bit below market value? Yes… but they also come with significantly more risk. At the end of the day, any savings are often immediately negated by that added risk. Today we’re going to discuss the process of foreclosure, and also outline the risks.
The Foreclosure and Power of Sale Process in Ontario
There are two legal mechanisms lenders in Ontario can use to recover their equity when a homeowner defaults on a mortgage.
The first is a foreclosure. Foreclosures are uncommon in Ontario because they require a court hearing, transfer actual property ownership directly to the lender, and are far more costly and time-consuming to coordinate. Instead, lenders in Ontario almost always use the Power of Sale process instead.
A Power of Sale is a legal right granted to lenders under Ontario’s Mortgages Act, allowing them to force the sale of a home once a homeowner defaults. The process is as so:
-
Once a homeowner misses a mortgage payment (and after a minimum 15-day default period), the lender sends a Notice of Sale Under Mortgage.
-
This triggers a legally mandated redemption period, a minimum of 35 days (or 40 days if the notice is sent by mail to an owner-occupied property), during which the homeowner has the legal right to catch up on missed payments, along with legal and administrative costs, and stop the process entirely.
-
If the homeowner doesn’t redeem the mortgage within that window, the lender can proceed to market and sell the property.
We’re intentionally not giving an end-to-end timeline for the entire process, because that part genuinely varies. The redemption period itself is fixed by law, but how long it takes a lender to get from default to an accepted offer depends heavily on the individual case. In our experience, it could take three months, or it could take well over a year, before a lender resells a home in default.
How Do Lenders Sell Power of Sale Homes?
Lenders have a statutory duty to act in good faith and obtain fair market value for the property. Market value is a bit subjective, and buyers usually consider a forced sale to carry some stigma. Banks typically start by ordering independent appraisals, then they list the home on MLS (Realtor.ca). In Ontario, all foreclosure properties will be marketed on MLS to the public; the bank is legally obligated to get the highest possible price for the home.
Because banks must legally prove they made every reasonable effort to achieve fair market value, they tend to use one of a few unusual offer structures:
-
Low initial price with an irrevocability period. They price it low but require all offers to remain open for 5 business days. Each additional offer received resets that offer window for all bidders. And, if you want to amend your offer to improve the price or terms, you have to resubmit with a new 5 day expiry window. In a heated market, this can mean it takes weeks just to get your offer accepted. The demand also pushes bidders to sometimes pay above market value for the property.
-
A holdback on early offers. Some banks only accept offers after the property has been on the market for 10 business days, which, again, tends to generate competition.
-
List at market value, and accept only list price. In this structure, the lender will only accept an offer at the full asking price, or very close. If they don’t get listing price, they will lower the asking price of the home until someone pays list price.
The bank’s priority in any Power of Sale is simple: satisfy its legal obligations and recover its funds.
Where Does the Money Go? (The Surplus Proceeds Rule)
A common myth is that the lender keeps all the proceeds from a Power of Sale. In reality, the bank only takes what they are owed (plus accrued interest, legal cost, and realtor fees). Any remaining profit after the mortgage and expenses is owed to the owner. If there are multiple liens (mortgages) on the home, then the first title holder gets paid first, then the second, and so forth, until any remaining funds are paid out to the owner.
The True Meaning of “As-Is” and History Risks
In a traditional resale transaction, the homeowner and listing agent are legally required to disclose known material latent defects, this can include basement cracks, mold in the attic, or structural issues.
A Power of Sale comes with no representations or warranties whatsoever. The bank has never set foot in the home, and the bank’s realtor doesn’t enter it either (it’s a liability for the listing agent to have any idea of what is being sold). The property is sold strictly as-is, and the agreement typically includes clauses along these lines:
“The Buyer confirms that the Buyer shall accept the property on an ‘as is’ basis without regard to the degree of completeness, state of repair, location of structures, walls, retaining walls or fences and subject to any judicial, municipal or other governmental by-laws, agreements, restrictions or orders affecting or regarding the property’s condition or use (including inspection reports, deficiency and other notices, work and other orders)… The Buyer is solely responsible for any damages to, or deterioration of, the premises from the date of the agreement of purchase and sale until completion.“
To me, the most concerning part of this clause isn’t just the physical condition, it’s that the buyer bears all risk for damages between contract signing and closing. If the previous homeowner walks back in and vandalizes the home, the buyer absorbs that loss, not the bank.
Severe Unknown History Risks
Because the bank and listing agent have never lived in the home, they genuinely cannot disclose its history or safety:
-
Illegal Activities & Illicit Drugs: The property may have been used as an illegal drug lab, grow-op, or criminal operation. Homes exposed to fentanyl production or heavy illicit drug use can leave deadly, invisible chemical residue on walls, floors, and inside HVAC ductwork. Decontaminating a drug-contaminated home can easily cost tens of thousands of dollars in specialized hazmat remediation.
-
A history of violence or crime: The previous owners or occupants could have been arrested on-site, leaving the location targeted by criminal associates or known to law enforcement.
-
Unwanted attention or guests: Sometimes vacant or dilapidated homes end up being used by squatters or vagrant people. These people may show up after closing and try to enter the property assuming it’s still vacant.
The Bank Can Cancel the Purchase at Any Point (Right of Redemption)
The closing date in a Power of Sale isn’t fixed the way it is in a traditional sale. Once your offer is accepted, the bank can push back closing if necessary, and it retains the right to cancel the agreement entirely up until closing day if it cannot deliver clear title.
The Homeowner’s Right of Redemption
Why does cancellation happen? Under Section 22 of Ontario’s Mortgages Act, the defaulting borrower retains a statutory Right of Redemption.
This allows the homeowner to stop the process by paying off the outstanding arrears and legal fees right up until the exact moment the land transfer deed is registered on closing day. Even if you hold a firm, signed Agreement of Purchase and Sale, if the homeowner manages to secure last-minute private financing 24 hours before closing, your deal is automatically voided. Your deposit will be returned, but you will not be compensated for inspection fees, lawyer bills, or lost time.
Secondly, the homeowner has every right to list the property for sale, and sell it, to another buyer, even if you’ve purchased the home from the bank. It’s not very common, because the owners will not have possession of the home anymore to conduct showings, but they can still sell their home as long as it closes before your contract with the bank.
Tip: Never sell your current home, give notice to your landlord, or bridge finance another purchase based on a Power of Sale closing date. You are at risk of the contract being canceled up to the final hours of registration.
Tenancy, Possession, and Hidden Financial Liabilities
1. Inheriting Tenants or Hostile Occupants
If the property is occupied by legal tenants, Ontario’s Residential Tenancies Act (RTA) protects them. A Power of Sale does not evict existing tenants. The buyer inherits them along with their existing lease terms, rent rates, and any past non-payment histories. If the evicted former homeowner refuses to leave, the lender must obtain a Writ of Possession for the regional Sheriff to perform an eviction.
2. Unregistered Liens and Inherited Bills
While lenders attempt to clear major mortgages and liabilities that run with the property, they might miss an expense or liability. The banks agreement of purchase and sale (APS) will absolve them from responsibility if they miss any liens, taxes, or charges on title. That means you can be on the hook for:
-
Municipal Property Tax Arrears: Unpaid property taxes form a super-priority lien on the property that must be resolved prior to title transfer.
-
Unpaid Municipal Utilities: In many Ontario municipalities, unpaid water and sewer bills are added directly to the property’s tax roll, meaning the new owner inherits the debt.
-
Rental Equipment Contracts: Water heaters, furnaces, and air conditioning units are frequently under active consumer rental contracts that automatically transfer to the new owner with the title.
-
Construction Liens: Unpaid contractors can register liens under the Construction Act against the property for recent work ordered by the previous owner.
Financing Obstacles for Buyers
Getting a mortgage on a Power of Sale property can be an uphill battle… if you are financing with a big 6 bank, the bank will want an appraisal. If the appraisal discovers severe damage, missing appliances, drug paraphernalia, or believes the home is not in a livable condition, the lender may adjust or reject the mortgage.
Frequently Asked Questions
Is a Power of Sale the same as a foreclosure in Ontario? No. A foreclosure requires a court hearing, takes longer, and transfers full title and equity to the lender. A Power of Sale is a faster, out-of-court process governed by the Mortgages Act where the lender sells the property on behalf of the owner to recover debt, returning any surplus funds to the borrower.
How long does the Power of Sale process take in Ontario? The redemption period itself is fixed by law at a minimum of 35 days (40 if served by mail to an owner-occupied property), during which the homeowner can catch up on payments. Total time from default to a completed sale varies anywhere from a few months to over a year.
Are Power of Sale properties actually cheaper than market value? Rarely by much. Lenders are legally required to pursue fair market value, and high buyer demand in the GTA keeps pricing close to typical market levels. Any small discount is usually eaten up by repair costs. Buyers should also consider the risks involved in a purchase of a power of sale when weighing the potential discount.
What happens to my deposit if the homeowner redeems the mortgage before closing? If the homeowner exercises their legal Right of Redemption before title transfers, the contract becomes void and your deposit is returned in full. However, you will not receive compensation for appraisal costs, legal fees, or lost opportunities.
To Buy or Not to Buy a Foreclosure or Power of Sale in Ontario
Many buyers turn to Power of Sale properties because they associate them with discount real estate. But if there’s any discount at all, it exists specifically because the property carries substantial legal, structural, financial, and environmental risks.
If you’re genuinely looking for a good deal, work with an experienced buyer’s agent and take the time to find the right home through the traditional market. It doesn’t have to be a Power of Sale to be a great deal. If you’re looking to start your search, reach out to us and we can discuss why it’s safer to buy from an individual rather than a bank.
