Power of Sale Homes in Ontario: A Buyer's Legal Guide
A power of sale home in Ontario is a property the lender is selling because the owner stopped paying the mortgage. You can buy one, and the price can be attractive. You also buy it “as is” from a seller that gives no warranties, can cancel if the owner pays off the debt before closing, and may not be able to hand you an empty house. Before you firm up, your lawyer should review the lender’s terms, check which debts will come off title on closing and make sure your deposit is protected.
Under Ontario’s Mortgages Act, a lender with a power of sale clause can serve a notice of sale once the default has lasted at least 15 days. It must then wait at least 35 days before it can sell. That is why most power of sale listings appear about two months or more after the first missed payment, and why lenders push for quick, firm deals once they have an offer.
RealEstateLawyers.ca LLP is an Ontario real estate law firm that closes home purchases across the province for a flat legal fee, including power of sale purchases. This guide covers what changes when the seller is a lender, what happens to the debts on title and the checks to make before you sign.
How a Power of Sale Works in Ontario
When an owner falls behind on a mortgage, the lender can sell the property to recover what it is owed. The owner stays on title until the sale closes but no longer controls it. The lender sets the listing price, writes the terms of the agreement and picks the closing date. Its aim is to recover the debt and its costs with as little risk as possible.
Most mortgages in Ontario include a power of sale clause, which means the 15-day and 35-day periods apply. Where a mortgage has no such clause, the law requires three months of default and 45 days’ notice instead.
Worked Example: From First Missed Payment to Listing
| Step | Earliest timing | What it means for a buyer |
|---|---|---|
| Owner misses a payment | Day 0 | The default begins |
| Notice of sale served | Day 15 or later | The owner and every registered creditor are notified |
| Notice period ends | At least 35 days after the notice, so about day 50 or later | The lender can now accept an offer |
| Listing and offers | Often two to three months after the default | The lender’s own schedule of terms is attached to every agreement |
| Closing | Set in the agreement | The owner can usually still pay off the debt until the sale closes |
Courts count the notice period in clear days, so in practice it runs a little longer than 35 days. Many files also take longer while the lender gets the property ready to list.
What “As Is” Means in a Power of Sale Agreement
Lenders attach their own schedule, often called Schedule B, to the agreement of purchase and sale. The wording changes from lender to lender, but most schedules say the same things.
| Common lender clause | What it means for you |
|---|---|
| No warranties or representations | The lender makes no promises about the condition, size, zoning, chattels or fixtures |
| No seller disclosure | The lender never lived in the home and will not answer questions about leaks, renovations or past problems |
| Right to cancel if the owner redeems | If the owner pays the debt before closing, the lender can end the deal, usually by returning your deposit without paying your costs |
| Vacant possession not guaranteed | The former owner or a tenant may still be living there on closing day |
| No adjustments after closing | Errors in property taxes, utilities or other amounts found after closing become your problem |
| Firm closing date | The lender may refuse to move the date, even if your financing runs late |
Conditions still matter. Most buyers ask for a home inspection, financing approval and a lawyer’s review of the lender’s schedule, and lenders often accept short conditional periods. Once you waive your conditions, you have very little room to negotiate. If you have not hired a lawyer yet, our guide on whether you need a lawyer to buy a house in Ontario walks through what the lawyer does from offer to keys.
Tenants, Occupants and the Owner’s Right to Redeem
An occupied home is the biggest practical risk. A tenant with a lease is protected by Ontario’s Residential Tenancies Act, and a power of sale does not end the tenancy. You may become the tenant’s landlord on closing. If you plan to move in, you would have to follow the Act’s process to end the tenancy, which has notice rules and usually requires compensation.
A former owner who will not leave is a different problem. If the agreement promises vacant possession, getting the home empty is usually the lender’s job. Read that clause closely before you waive your conditions.
Until the sale closes, the owner can usually pay off what is owed, and most lender schedules let the lender cancel your agreement if that happens. Plan for that chance. Hold off on booking movers or giving notice on your own lease until closing is close and the lender has confirmed the sale is going ahead.
What Happens to the Debts on Title
A home sold under power of sale often has more than one debt registered against it. Common examples are a second mortgage, a private loan, a construction lien, writs of execution against the owner and unpaid property taxes. A sale completed properly under the Mortgages Act gives the buyer title free of the charges registered after the selling lender’s mortgage. Charges registered ahead of it stay on title unless they are paid out.
| What is on title | What usually happens on closing |
|---|---|
| Mortgages, liens and writs registered after the selling lender’s mortgage | Removed through the power of sale process |
| A mortgage registered ahead of the selling lender’s mortgage | Stays on title unless it is paid out from the sale proceeds |
| Unpaid property taxes and utilities | Paid by the lender or adjusted on closing, with amounts confirmed by your lawyer |
| A residential tenancy | Continues under the Residential Tenancies Act |
This is where the buyer’s lawyer earns the fee. Your lawyer searches title, confirms the lender gave notice to everyone entitled to it, checks which charges will come off and which must be paid out, and gets the payout figures before closing. Title insurance adds protection against problems the search does not reveal, including fraud. Our article on five things to know about title fraud explains how that risk shows up in Ontario.
Costs to Budget For
On the legal side, a power of sale purchase costs the same as any other purchase: the lawyer’s fee, disbursements, HST and land transfer tax. Land transfer tax is charged on the full purchase price, and a first-time buyer can still claim the refund. Our guide to first-time buyer land transfer tax in Ontario shows how the refund is calculated and claimed.
Budget separately for the costs that are more likely on a power of sale home:
- A thorough home inspection, since the lender cannot tell you anything about the property
- Repairs, cleaning and changing the locks after a vacant or neglected property closes
- Short-term housing if the closing is delayed or the deal is cancelled
- Time and costs to deal with an existing tenancy, if the home is occupied
Have the Agreement Reviewed Before You Firm Up
The lender’s schedule, who is living in the home and the debts on title decide whether a power of sale home is a good buy. RealEstateLawyers.ca LLP closes purchases across Ontario for a flat legal fee, with disbursements listed separately on your quote, and you can speak with a lawyer about your agreement before your conditions expire. Our fee also includes one remote video signing appointment, available 7 a.m. to midnight (Eastern) seven days a week. Request your free quote and send us the agreement as soon as your offer is accepted.
Frequently Asked Questions
Can I buy a power of sale home in Ontario with a mortgage?
Yes. Most buyers finance a power of sale purchase the same way they finance any other home. Get your approval in place early, because lenders selling under power of sale rarely agree to move the closing date.
Can the owner stop the sale after my offer is accepted?
Often, yes. The owner can usually pay off the debt until the sale closes, and most lender schedules let the lender cancel the agreement if that happens. Your deposit is normally returned, but your inspection and legal costs usually are not.
Are power of sale homes always cheaper?
No. Lenders have a legal duty to take reasonable steps to get fair market value, so deep discounts are less common than many buyers expect. Any saving usually reflects the as-is terms and the extra risk you take on.
Do I pay land transfer tax on a power of sale purchase?
Yes. Land transfer tax applies at the usual rates, and first-time buyers who qualify can still claim the provincial refund and, in Toronto, the city rebate.
Will a tenant have to move out when I buy?
Not automatically. A residential tenancy continues after a power of sale. If you want to live in the home, you must follow the Residential Tenancies Act’s process to end the tenancy.
This article provides general information only and is not legal advice. For advice about a power of sale purchase, speak with a lawyer.
