How distressed property sales work — and your rights as an owner facing default
When a homeowner defaults on their mortgage, Canadian lenders have two main remedies: power of sale and foreclosure. Both have significant implications for the owner and potential opportunities for buyers. Here's how each works.
Power of sale is the more common remedy in Ontario and most common-law provinces. The lender sells the property without taking ownership — proceeds go to pay off the mortgage, with any surplus returned to the borrower. The lender must: provide notice of sale, advertise the property, obtain a fair market value (confirmed by appraisal), and sell at arm's length. The entire process typically takes 4–6 months from default to sale. Power of sale properties can be good buyer opportunities but come with risks.
Foreclosure is more common in BC, Alberta, and Quebec. The lender takes ownership of the property entirely, extinguishing the owner's equity. In foreclosure, if the property sells for more than the mortgage, the lender keeps the surplus (unlike power of sale where surplus goes to the borrower). The process takes longer and involves court proceedings. Buyers purchasing foreclosures get clean title but typically buy as-is with no seller disclosure and sometimes limited access to inspect.
Pros: sometimes priced below market, particularly in slow markets or where the lender wants a quick close. Cons: sold strictly as-is — no seller disclosure, no adjustments, no representations. Lender will not repair or renegotiate. Typically shorter conditions periods. Difficult to get full cooperation for inspections — sometimes viewed only with a lockbox and no seller present. Inspect as thoroughly as possible and price any known deficiencies into your offer. Legal review is essential — power of sale purchases have distinct legal requirements.
Contact your lender immediately — before you miss a payment if possible. Most lenders have hardship programs, payment deferrals, and mortgage modification options for borrowers who communicate early. Options: refinancing, adding missed payments to the mortgage balance, extending amortization. A licensed insolvency trustee can advise on consumer proposals if debt is broader than just the mortgage. CMHC has a homeowner assistance program for insured mortgages. The worst option is doing nothing — defaulting without communicating removes all options.
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Read All ReviewsThese guides are written for Canadian buyers, sellers, renters, and landlords and are kept current for 2026. They are for informational purposes only — not legal, tax, or financial advice. Rules vary by province; confirm details with your lawyer, accountant, or licensed real estate professional before making decisions.