- Power of sale is used in the great majority of Ontario enforcements because it is faster and cheaper.
- Foreclosure extinguishes the debt: the lender takes the property instead of a shortfall claim.
- The choice turns on whether the property is worth more or less than what is owed.
- A lender selling under power of sale must take reasonable care to obtain market value.
The one difference that decides it
Both routes end with the lender realising on its security. What separates them is what happens to any balance.
Under power of sale, the property is sold, proceeds are applied to the debt, and if a shortfall remains the lender may pursue those liable on the covenant. Any surplus belongs to the borrower.
Under foreclosure, a court order vests title in the lender and the debt is treated as satisfied by the property. There is no shortfall claim afterwards, and there is no surplus to return.
So the calculation is straightforward. Where the property is worth less than the debt, power of sale preserves a claim worth having. Where it is worth appreciably more, foreclosure captures a surplus that would otherwise go to the borrower.
Why power of sale dominates in practice
Beyond the shortfall point, power of sale is simply more efficient. It proceeds largely outside court under the mortgage terms and Part III of the Mortgages Act, which means less delay and materially lower cost.
Foreclosure runs as a court action, allows for redemption, and is contested more often, because a borrower with equity is losing it rather than receiving it back.
For most residential enforcements, where the loan-to-value leaves little or no equity, power of sale is both faster and the route that keeps the lender’s options open.
The duty that constrains the sale
A lender exercising power of sale is not free to dispose of the property on whatever terms suit it. It must act in good faith and take reasonable care to obtain the true market value at the time of sale.
In practice that means a genuine listing, real marketing exposure, an independent appraisal where value is uncertain, and an arm’s-length buyer.
A borrower who shows the duty was breached can claim the difference between the price obtained and the price that should have been. That claim survives the sale, and it is the standard defence to a shortfall action. A lender that runs the sale carelessly can find the recovery reduced by exactly the amount it saved by rushing.
What complicates either route
Subsequent encumbrances change the distribution and sometimes the strategy: second mortgages, construction liens, execution creditors and CRA claims all have positions to be worked out.
Residential tenancies generally survive a sale, so vacant possession is not automatic and must be dealt with through the proper process.
A borrower in bankruptcy or under a proposal may have the benefit of a stay, which halts enforcement until the position is resolved.
And a borrower who disputes the default can seek an injunction. That is not usually successful, but it costs time.
Common questions
Which route is better?
Neither in the abstract. Power of sale preserves the shortfall claim; foreclosure captures surplus. Current value against the debt decides it.
Can a borrower stop a power of sale?
By curing the default within the redemption period. Otherwise a court order would generally be needed, which requires an arguable basis.
What happens to a surplus?
It belongs to the borrower, subject to subsequent encumbrances, and the lender must account for it.
Does foreclosure remove second mortgages?
A final order generally extinguishes subsequent interests, which is why those parties often redeem to protect themselves.
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