Quick Answer
If homeowners bring their mortgage current before a power of sale transaction closes, the sale is cancelled. The buyer's purchase agreement becomes void, and the property reverts to the homeowner's full ownership.
Jenn and Michael had been searching for their first home in Toronto for eight months. When they found a three-bedroom semi-detached house listed as a power of sale at $725,000 they jumped at the opportunity. They secured financing, sold their condo, and booked movers for the Friday closing date.
On Wednesday afternoon, 48 hours before closing, their lawyer received notice from the lender's counsel: the homeowners had come up with $67,000 to bring the mortgage current. The sale was cancelled. The transaction was dead.
Jenn and Michael scrambled to find temporary housing after selling their condo. Their pre-approved mortgage sat unused. The $25,000 deposit was eventually returned, but the emotional and financial disruption lasted months. Their story illustrates the single biggest risk in power of sale purchases: the right of redemption.
Understanding Power of Sale in Ontario
Power of sale is the primary method lenders use to recover funds from defaulted mortgages in Ontario. Unlike foreclosure (which involves court proceedings), power of sale is an administrative process outlined in the Mortgages Act (Ontario).
How Power of Sale Works
When a borrower defaults on mortgage payments, the lender must follow a specific legal process:
- Default occurs: Borrower misses mortgage payments (typically 3+ months)
- Notice of Sale: Lender sends formal notice under Section 35 of the Mortgages Act
- Redemption period: Borrower has 35 days to pay arrears and costs
- Listing period: If unredeemed, property is listed for sale
- Sale and closing: Property sells to a third-party buyer
For a detailed breakdown of the power of sale timeline and process, see our guide: Understanding Power of Sale in Ontario: A Complete Timeline.
Power of Sale vs. Foreclosure in Ontario
Ontario heavily favors power of sale over foreclosure for several reasons:
Power of Sale:
- Administrative process, no court required
- Faster for lenders (4-8 months typically)
- Homeowner retains redemption rights until closing
- More common in Ontario (95%+ of distressed sales)
Foreclosure:
- Requires court proceedings
- Judge issues Final Order of Foreclosure
- Homeowner's rights are extinguished before sale
- Rare in Ontario due to cost and time
This distinction matters enormously for buyers. In foreclosure jurisdictions, once the property is listed, the homeowner cannot reclaim it. In Ontario's power of sale system, that risk persists until the very last moment.
For more on the differences, read: Power of Sale vs. Foreclosure: What Ontario Homebuyers Need to Know.
The Right of Redemption in Ontario
The right of redemption is a statutory protection for homeowners facing power of sale, codified in Section 22 of the Mortgages Act. This right allows homeowners to reclaim their property at any point before the sale officially closes by bringing the mortgage current.
What the Homeowner Must Pay
To exercise redemption rights, the homeowner must pay:
- All mortgage arrears: Every missed payment, in full
- Interest on arrears: Accumulated interest on overdue amounts
- Legal costs: The lender's legal fees for the power of sale proceedings
- Real estate commissions: If a realtor was involved in listing the property
- Other documented costs: Inspection fees, property maintenance, insurance
For a typical power of sale in the Greater Toronto Area, redemption costs can range from $40,000 to $150,000+ depending on how long the default has persisted and how far the sale process has advanced.
Timeline: When Can Redemption Occur?
Redemption can happen at any point during the power of sale process:
During the listing period: Most common redemption scenario. Homeowners may secure funds from family, refinance with a private lender, or sell another asset.
After an offer is accepted: Even after the buyer's offer is accepted and the purchase agreement is signed, redemption rights remain active.
Days before closing: As illustrated in Sarah and Michael's story, redemption can occur 72, 48, or even 24 hours before the scheduled closing.
Until registration: The right exists until the exact moment the property ownership transfers at the Land Registry Office. Once registered, redemption is no longer possible.
This timeline creates tremendous uncertainty for buyers, particularly in the final weeks before closing when they've already made irreversible commitments based on the anticipated purchase.
Deposit and Legal Status
Deposit return: Most power of sale purchase agreements include clauses addressing redemption. The deposit is typically returned to the buyer, but this is not guaranteed and depends on the specific contract language. Returns can take 2-4 weeks.
No compensation for losses: Ontario law does not provide buyers with compensation for their disruption, lost opportunities, or sunk costs when redemption occurs. The homeowner exercised a statutory right; no wrongdoing occurred.
No recourse against parties: The buyer typically has no legal claim against the homeowner, the lender, or their real estate agents. Redemption is a built-in feature of the power of sale system, not a breach of contract.
For guidance on protecting yourself during real estate transactions, see: Title Insurance in Ontario: What It Covers and Why You Need It.
How Deeded Helps with Power of Sale Transactions
Power of sale purchases require specialized legal expertise to navigate redemption risk, title complexities, and contract protections. Deeded's platform connects you with experienced Ontario real estate lawyers who understand the nuances of distressed property transactions.
Our Power of Sale Services
Comprehensive title review: Our lawyers conduct thorough title searches to identify liens, encumbrances, and other issues common in power of sale properties that could complicate your purchase.
Contract review and protection: We review your purchase agreement to ensure adequate protections for redemption scenarios, deposit return provisions, and other buyer safeguards.
Lender coordination: We communicate directly with the lender's counsel throughout the transaction, giving you early warning if redemption becomes likely.
Transparent pricing: Power of sale transactions cost the same as our standard real estate closings—no surprise fees or hourly billing. You'll know your exact legal costs upfront.
Fast turnaround: Deeded's technology platform enables 35-40% faster closing times than traditional firms, helping you move quickly on time-sensitive opportunities.
Essential Facts to Remember
- Redemption can happen anytime until registration: No safe period exists. Even a transaction 24 hours from closing can be redeemed.
- Buyers have limited legal recourse: Redemption is a statutory right, not a breach. You cannot sue the homeowner or lender for exercising this right.
- Financial protection is critical: Never sell your current home or commit to irreversible changes until the power of sale property is registered in your name.
- Professional guidance is essential: The complexity and risk of power of sale transactions justify working with experienced legal counsel who can spot warning signs and protect your interests.
- Risk assessment is ongoing: Redemption likelihood can change throughout the transaction. Stay in close contact with your lawyer and be prepared to adjust plans.
Is a Power of Sale Worth the Risk?
Despite redemption risk, power of sale properties can offer legitimate value for informed buyers who:
- Understand and accept the uncertainty
- Have financial flexibility to weather a failed transaction
- Maintain backup housing options
- Work with experienced legal and real estate professionals
- Can act quickly when opportunities arise
For many buyers, the potential savings justify the added complexity. For others, the stress and exposure are too great. Neither choice is wrong—it depends on your individual circumstances, risk tolerance, and financial situation.
Frequently Asked Questions
Q: Can I negotiate to remove the homeowner's right of redemption?
A: No. The right of redemption is statutory under the Mortgages Act and cannot be waived or contracted away in a purchase agreement.
Q: Will I get my deposit back if the property is redeemed?
A: Usually yes, but this depends on your purchase agreement language. Ensure your contract explicitly states the deposit is returned in full upon redemption.
Q: Can the homeowner redeem after closing?
A: No. Once the transaction is registered at the Land Registry Office and ownership has transferred to you, redemption rights are extinguished.
Q: How will I know if redemption is about to happen?
A: The lender's lawyer will notify your lawyer if the homeowner contacts them about redemption. However, you may receive very short notice—sometimes just 24-48 hours.
Q: Are power of sale properties always good deals?
A: Not necessarily. Factor in redemption risk, potential title issues, property condition, and opportunity costs. Sometimes the discount doesn't justify the complications.
Q: What if I've already spent money on inspections and the property is redeemed?
A: Those costs are typically not recoverable. This is why limiting upfront expenses until closer to closing is advisable.
Q: Does title insurance protect against redemption?
A: No. Title insurance covers title defects and ownership issues, not the transaction failing to close due to redemption.
Q: Can I buy out the homeowner's redemption rights?
A: This is theoretically possible through a separate agreement with the homeowner, but it's extremely rare and legally complex. Most lawyers would advise against it.
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