Power of Sale

Power of sale grants to the lender the right to sell property upon the default or non-payment of a home mortgage on the part of the borrower. The lender, typically a bank or another financial institution, aims to recover the money that is sill outstanding on the mortgage loan. The creditor will gain and subsequently sell the borrower’s property. After the lender is paid in full, the property is transferred to the new owner and any surplus is returned to the borrower. The latter is divested of the right to pay off the mortgage and to recover the lost property. It should be noted that sometimes, mortgage balances exceed the market price of the properties. Moreover, if the former owners have struggled financially, their properties may have been poorly maintained.

There are two possible ways for lenders to recover mortgage home loans in case of the borrowers` default. These are judicial sale and power of sale. In the first case, the lender should receive the court`s permission in order to proceed with the loan recovery. The judicial sale is, therefore, conducted under the authority of the court. The latter orders the sale of the property, confirms the occurrence of the sale, and hears all requests for judgment deficiencies. Moreover, the lender has to commence a lawsuit against the borrower. In contrast, the court is not involved in any manner in the power of sale. The lender does not need to request a formal permission while acting under the power of sale procedure. The lender initiates the process by sending a notice to the debtor who is also the present owner of the property. Deficiency judgments may be sought after the property has been sold.

As a procedure, the power of sale originated in Ontario. This method was developed by lenders who sought a quick way to sell the debtors` property and to recover the mortgage loans. For this reason, they began to include power of sale in all mortgage papers. This clause aimed to dispose of the borrower’s property without the formal permission of the courts. At present, the power of sale is formally included in the Ontario Mortgages Act.

The power of sale is exercised in two ways: contractual and statutory. Under the contractual form, the mortgage contains a power of sale clause. The mortgage papers contain no power of sale under the statutory form. However, the lender can still initiate the procedure if the borrower defaults for thee months or longer. Both forms may be initiated by means of a formal notice that is given fifteen days past the default. The notice may be send to any party that has an interest in the property in question. The notice may be given to encumbrances and statutory lien holders, among others.

In Canada, the power of sale is used as the main method of loan recovery in New Brunswick, Newfoundland, Ontario, and Prince Edward Island. On the other hand, Alberta, British Columbia, Manitoba, Saskatchewan, and Quebec employ judicial sale as their primary method. Nova Scotia has adopted a mortgage disclosure procedure which also involves judicial supervision.



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