Understanding the Foreclosure Process in Canada
The Foreclosure Process in Canada varies from province to province. There are two main ways a lender can recover a mortgage debt when a borrower defaults.
- Judicial Sale . A judicial sale is conducted under the supervision and authority of the court system. A lender must apply to the court for the court’s permission to sell a property.
- Power of Sale . A power of sale allows a lender to sell a property without the involvement of the court. The lender has the right to sell the property according to the terms set out in the mortgage document or according to provincial legislation that authorizes “power of sale” within that province.
For example, in Ontario the “Power of Sale” is used as the lenders primary method of recovery. The same method is used in Newfoundland , New Brunswick and Prince Edward Island . The Judicial Sale method has been adopted as the primary debt recovery vehicle in British Columbia , Alberta , Manitoba , Saskatchewan and Quebec . When it comes to Nova Scotia , the primary method of the recovery process is called “Mortgage Foreclosure” or “Mortgage Foreclosure and Sale ”. Even though the wording is different it is really considered to be a Judicial Sale because the process directly involves the court.
So What’s the Difference?
There are three basic differences between the Judicial Sale and the Power of Sale:
- The extent of Court involvement is the first major difference. In Judicial Sale Provinces, the court is extensively involved in the entire process. E.g. Ordering the property to be sold, they confirm the sale procedure and hearing any application for a deficiency judgment. In contrast to this, there is virtually NO court involvement in the “Power of Sale ” Provinces. Can you guess which system is quicker? (i.e. people lose their homes quicker)
- The Instigation of Proceedings. The way in which the Foreclosure process is started in the Power of Sale Provinces is simply by way of sending a notice to the borrower and current owner of the property. This “notice” starts the process. In contrast, the Judicial Sale Provinces start the process by way of a lawsuit against the borrower and all who may be liable. Can you guess which process is far more costly?
- The method use to seek a “deficiency judgment”. In Judicial Sale Provinces, the deficiency judgment action is started as part of the main action, or suing of the borrower via the initial law suit. In Power of Sale Provinces, a lender seeking a deficiency judgment must start an action against the borrower “after” the property has been sold. So even if you lose your house, if there isn’t enough equity to cover all the costs, you may still lose your shirt as well. All the more reason to do whatever you can to avoid foreclosure like the plague.
- Time frames. The Judicial Sale process usually can take about six months or so before it is all over. To contrast this, a Power of Sale foreclosure (particularly in Ontario ) can be over in only 45 days from the time the “notice” has been given.
There are a few minor variations to the basic proceedings outlined above. For example, Nova Scotia has its original mix of the two practices, and in Alberta and Manitoba , a foreclosure order from the court can only be requested after the mortgaged property has been offered for sale at a public auction, where the appropriate notice has been given, and the highest bid was insufficient to clear the mortgage debt.
In BC, there are a few more expensive hoops for lenders to jump through. The Court must approve the purchase price, terms of sale, and even the realtor’s commission entitlement. The upside to this is that BC is regarded as being the province that protects borrowers the most. However, if you do experience the entire proceedings, you will have the least amount of equity (if any) left.
Of the four Provinces that primarily use the Power of Sale process, only Ontario has adopted the practice of listing the property with a Real Estate broker. Now, be aware though, that lenders in Ontario may use the Judicial Sale method OR the Power of Sale, however, almost 99% of all foreclosures are Power of Sale. Why? Quite simply, because it is less expensive than the judicial process and it is much FASTER. i.e. The lender gets their money quicker. And on the flip side, you lose your home quicker.
Newfoundland almost exclusively uses the Power of Sale method of foreclosure because it is governed by their Conveyance Act, while the rules of the Supreme Court authorizes judicial sale. Go figure.
PEI had an issue in clarifying the law relating to foreclosure. The courts concluded to accept the “time-honoured practice” of the Province and continued to use the “Power of Sale”.
If you’re facing foreclosure, fill out the form below or call us right away. We may be able to help you.