Foreclosure extinguishes the debt. The lender takes the property instead of a shortfall claim.
The Short Answer
How does foreclosure differ from power of sale?
Foreclosure is a court action ending in an order that vests title in the lender. The debt is treated as satisfied by the property, so the lender cannot afterwards pursue the borrower for a shortfall. Power of sale keeps that shortfall claim alive. That single difference explains why lenders choose power of sale in most cases, and foreclosure where the equity exceeds the debt.
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THE TRADE-OFF
Taking the Property Instead of the Claim
In a foreclosure, the lender ends up owning the property. Where the property is worth more than the debt, that is an advantage: the lender keeps the surplus, which on a power of sale would go to the borrower.
Where the property is worth less than the debt, foreclosure is usually the wrong choice, because the shortfall claim is given up in exchange for an asset worth less than the loan.
That calculation is the whole decision, and it should be made on a current valuation rather than the appraisal from origination.
THE PROCESS
How a Foreclosure Proceeds
It is a court action. The lender issues a claim, serves the borrower and all parties with a registered interest, and seeks judgment.
The defendants have opportunities to respond, including by asking for a redemption period in which to pay out, or by requesting a sale rather than a foreclosure. Subsequent encumbrancers may also seek to redeem in order to protect their position.
If nobody redeems, a final order of foreclosure issues and title vests in the lender free of subsequent interests.
The process is slower and more expensive than power of sale, and it is contested more often, because the borrower is losing the equity rather than receiving the surplus.
FOR BORROWERS
What Can Be Done in a Foreclosure
A borrower served with a foreclosure claim is not without options. The debt can be redeemed within the period allowed. A borrower can also ask the court to direct a sale instead of foreclosure, which preserves any surplus for them.
That request matters. Where there is real equity, converting a foreclosure into a sale is often the difference between losing everything in the property and receiving the balance after the debt is paid.
Doing nothing is what produces the final order.
General information
This page is general information about Ontario and Canadian law published by Lexaltico LLP. It is not legal advice, it does not account for the facts of any particular situation, and reading it does not create a solicitor-client relationship. Rules change, and whether any option is available to you depends on your own circumstances.
It depends on equity. Power of sale preserves the shortfall claim; foreclosure captures surplus. Neither is better in the abstract.
Can a borrower convert a foreclosure into a sale?
A borrower or subsequent encumbrancer can ask the court to direct a sale, which is commonly sought where there is equity to protect.
How long does foreclosure take?
Longer than power of sale, because it runs through the court and allows for redemption. Timelines vary with court scheduling and whether it is contested.
Does foreclosure wipe out the debt?
Effectively yes as against the borrower, because the property is taken in satisfaction of it.
What happens to second mortgages?
Subsequent encumbrances are generally extinguished by a final order, which is why those parties often redeem to protect themselves.
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Limitation Periods
Failure to commence proceedings within applicable limitation periods may permanently bar your claim. In Ontario, the general limitation period is two (2) years from discovery under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B. Seek legal advice promptly.
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How Lexaltico LLP handles personal information, under PIPEDA and Ontario law.
What we collect
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Four limits, and they matter in this order.
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If you contact us
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This website is not an emergency service. Enquiries sent through a form here are read during
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Using this website, submitting a form, sending an email or speaking to us on the telephone does
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Do not send confidential or sensitive information through this website or by email until we have
confirmed in writing that we can act for you. Information sent before that point is
not treated as confidential and may prevent us from acting for you, or for
someone else, in a connected matter.
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We aim to reply within one business day. Contacting us does not guarantee a reply within any
particular period, does not oblige the firm to act, and does not stop, extend or satisfy
any limitation period, filing date or court deadline.
Our telephone line
Our line is answered 24 hours a day, every day of the year. Outside office hours calls are taken
by our intake service, who record your details and pass them to the firm. A lawyer responds during
the next business day, or sooner if the matter is urgent. Answering the telephone is not the same
as giving legal advice, and no relationship arises from that call.
Who we are and how we are regulated
Law Society of Ontario
Lexaltico LLP is regulated by the Law Society of Ontario under the
Law Society Act, R.S.O. 1990, c. L.8. All lawyers practising in
Ontario through the firm are members in good standing.
Law Society of Alberta
Alberta matters are handled by lawyers licensed with, and in good standing with, the
Law Society of Alberta. A lawyer licensed in Ontario is not thereby licensed in
Alberta, and the reverse is also true.
Immigration regulation
Immigration consulting is provided by Regulated Canadian Immigration Consultants
in good standing with the College of Immigration and Citizenship Consultants under the
College of Immigration and Citizenship Consultants Act, S.C. 2019, c. 29,
s. 292.
Lawyers, paralegals and consultants
Not everyone at the firm is a lawyer.
Licensed paralegals in Ontario may act only within the scope the Law Society
permits, which does not include most family, estate or criminal matters.
Immigration consultants are regulated by the College, not by a law society,
and are not lawyers.
Law clerks and managers support files but do not give legal advice.
Each page and biography states which applies. Ask at the outset who will handle your matter and
under which licence.
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We serve clients in thirteen languages. Every page of this website is written and published in
English. Where anything is provided in another language, the English
version governs in the event of a difference. If you need an interpreter, tell us when
you book and we will arrange one.
Fees
The initial assessment
The complimentary 15 minute initial assessment is a brief introductory
conversation. It does not include a review of your documents and does not constitute
legal advice.
The firm charges a fee for substantive consultations, including in civil litigation,
criminal defence and immigration matters. The firm may waive that fee at its discretion.
Any fee is disclosed in advance and credited in full toward your account if you retain the
firm.
Referral fees
Where we refer a matter to another firm, including through LexKonnect, we comply with Rule 3.6-6.1 of the Law Society of Ontario’s Rules of Professional Conduct. Any referral fee is set out in the Law Society’s standard referral agreement, signed by you before the referral proceeds, and no fee is payable to us unless and until the receiving firm has been paid for its work. You are never obliged to accept a referral and are free to retain any firm you choose. No referral arrangement affects the independent professional judgment of any lawyer at this firm.
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under the law as it stood at the time. Past results do not predict or guarantee the result of any
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describes one person’s experience of one matter. They are not a promise, a
prediction or a guarantee about any other matter.
Links to other websites
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platforms, all operated by others. We do not control them, we are not responsible for
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Other notices
Limitation periods
Failure to start a proceeding within the applicable limitation period may permanently bar
your claim. In Ontario the general period is two years from discovery
under the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.
Shorter periods apply to many claims. Seek advice promptly. Nothing on this website extends a
limitation period.
Accessibility
We aim to meet the Accessibility for Ontarians with Disabilities Act
and WCAG 2.1 Level AA. If any part of this site prevents you from reaching us, telephone
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