In Canada, there are two main ways a lender can recover a mortgage debt when a borrower defaults: Judicial Sale or Power of Sale.

Judicial Sale

This is a sale where the court has the authority and supervises the process. It begins when the lender makes an application to the court for permission to dispose of the property through a sale, to recover a mortgage debt.
Power of Sale

In a Power of Sale, the lender is allowed to dispose of a property through a sale without seeking the permission of the court. This mortgage debt recovery method gives the lender the right to sell / dispose of the property from the mortgage document and or through legislation enacted in the province which governs Power of Sale in the specific province.

Differences between Judicial Sale and Power of Sale

The principal differences between Judicial and Power of Sale as a mortgage debt recovery method depend on the level of the court involvement, how the process is initiated and how the deficiency judgment or issues arising from the judgment is sought. The table below illustrates the differences.

Table: Illustration - Differences in Mortgage Debt Recovery Method - Power of Sale or Judicial Sale

Provincial Use of Judicial Sale and Power of Sale

The primary method adopted to recover mortgage debt varies among Canada's provinces. However, the procedures in the foreclosure proceedings vary in the primary method adopted by the provinces.

Four (4) provinces (Ontario, Newfoundland, Prince Edward Island, New Brunswick) adopt the Power of Sale method, while five (5) (Alberta, Manitoba, British Columbia, Quebec, Saskatchewan) adopt the Judicial Sale. One (1) province, Nova Scotia, adopts a combination of both, but the recovery process is called "Mortgage Foreclosure" or "Mortgage Foreclosure and Sale," but is considered judicial, as the court is involved. The table below illustrates the primary method adopted by each province in Canada.

Table: Illustration - Province and Mortgage Debt Recovery Application Method

FORECLOSURE PROCESS IN ONTARIO

The basic foreclosure procedure in this province, which adopts the Power of Sale as its primary mortgage debt recovery method, depends on whether or not the mortgage documents include Power of Sale provisions. Judicial Sale may be used; however the Power of Sale is used in virtually all cases in Ontario; as it is quicker and more cost effective given that the proceedings are generally laid out in the mortgage documents. Power of Sale is also part of the Ontario Mortgage Act.

The Ontario Mortgage Act recognizes two (2) types of Power of Sale:

I. Contractual Power of Sale - where the mortgage documents include power of sale provisions.

II. Statutory Power of Sale - when the mortgage documents do not include power of sale provisions. This type of Power of Sale is rarely used but provides an option to the lender if the borrower has defaulted on the mortgage debt for three (3) months or more.

The lender commences the foreclosure process by:

A] Sending a Notice of Sale Under Mortgage ("Notice") to the borrower after fifteen (15) days of mortgage debt default. This notice is also sent to statutory lien holders, any subsequent encumbrances, or any other third parties who have advised the lender in writing that they have a vested interest in the property.

The Notice, which is attached to the Mortgage Act, provides information on the lender's intention to exercise a Power of Sale, and details relating to the mortgage, and includes:

• The date the mortgage was made

• Property mortgaged and parties to the mortgage

• Amounts owing and outstanding

• Warning of action to be taken if amount owing is not paid by a specified date, depending on the type of Power of Sale, and action the lender will take if warning not heeded. Under a Contractual Power of Sale (indicated above), the borrower has 35 days to pay, unless otherwise stated in the mortgage agreements. Under a Statutory Power of sale, the borrower has 45 days to pay.

Regardless of the type of Power of Sale the lender cannot exercise any further action within the period specified, known as the ‘redemption period'. However, the borrower can negate the Notice or redeem the mortgage by paying the amounts owing, before the redemption period expires.

Failure on the part of the borrower to redeem the mortgage after the ‘redemption period', through a default of the conditions set out in the Notice of Sale Under Mortgage provides the lender with the option of disposing or selling the property, through a Power of Sale.

B] The Power of Sale permits the lender to dispose / sell the property via auction, private contract or through tender.

Property is generally listed with a registered Real Estate Agent and placed on the market for sale. The lender follows a criteria which includes having the property on the multiple listing services (MLS), obtaining appraisals (to determine market value) and satisfying the listing period for the property.

The Mortgage Act requires that the proceeds of the sale be applied in the following order:

• Firstly, to the cost of conducting the sale (including multiple listing, obtaining appraisals, duration of listing)

• Secondly, satisfying the interest and cost owing under the mortgage

• Thirdly, repaying the principal money owing under the mortgage

• Fourthly, satisfy any amounts due to subsequent encumbrances

• Finally, surplus, if any, arising from the disposal or sale is allocated to, the borrower(s)

www.MyBestSellingHomes.com strongly advises you to contact your Real Estate Lawyer for in-depth information pertaining to the above subjects.