Power of Sale, Foreclosure, Priority, and Discharge
December 2024 · 13 min read
Mortgage enforcement in Ontario is governed primarily by the Mortgages Act (power of sale procedure), the Land Titles Act (priority and registration), and the Courts of Justice Act (foreclosure). Ontario defaults to power of sale rather than foreclosure — a faster, out-of-court enforcement mechanism that accounts for the vast majority of residential and commercial mortgage enforcement actions. This guide covers the power of sale timeline, priority rules including PPSA fixtures and construction liens, discharge procedures, and the foreclosure election.
Ontario power of sale under Mortgages Act s.22 follows a statutory timeline from default to closing. The mortgagee must serve Form 1 notice and allow a 35-day redemption period before marketing the property.
| Step | Action | Timeline | Notes |
|---|---|---|---|
| 1. Default | Mortgagor fails to make payments or breaches covenant | Day 0 | Default triggers mortgagee rights under Mortgages Act and mortgage terms |
| 2. Demand letter | Mortgagee demands payment of arrears | Day 1-15 | Practical step before formal notice; not statutorily required but common |
| 3. s.22 Notice (Form 1) | Serve notice of exercise of power of sale on mortgagor and subsequent encumbrancers | Day 15-30 | Must be served personally or by registered mail; 35-day redemption period begins on service |
| 4. Redemption period | Mortgagor has 35 days to pay arrears, interest, and costs | Days 30-65 | If mortgagor pays arrears within 35 days, mortgage reinstates; full balance becomes due on sale |
| 5. Listing and sale | Property listed; mortgagee must sell for best price reasonably obtainable | Days 65+ | Mortgagee duty to obtain fair market value; cannot sell to related party at undervalue |
| 6. Surplus proceeds | Sale proceeds applied: costs, first mortgage balance, subsequent encumbrancers, surplus to mortgagor | On closing | Surplus paid to mortgagor; if competing claims, interpleader or court direction may be required |
* Residential mortgages with consumer mortgagors may have additional protections; commercial mortgages may allow contractual acceleration clauses.
Mortgage priority in Ontario is governed by the Land Titles Act registration system — first registered takes priority. However, several rules create exceptions for construction liens, PPSA fixtures, tax arrears, and future advances.
| Scenario | Priority Rule | Authority |
|---|---|---|
| First vs. second mortgage | First-registered mortgage takes priority under LTA s.72; date and time of registration controls | Land Titles Act s.72 |
| Tacking / tabula in naufragio | Second mortgagee who acquires the first may tack if no notice of intervening interests at time of acquisition; tabula doctrine largely displaced in LTA system | Equity of tacking; limited under LTA |
| Construction mortgage advances | Future advances under a registered mortgage retain priority from date of registration if optional advances have priority notice filed; mandatory advances always retain priority | Mortgages Act s.93-96 |
| PPSA fixture vs. LTA mortgage | Mortgage registered before PPSA fixture filing takes priority over the fixture; PPSA secured party who files before mortgage registration takes priority for the fixture | PPSA s.34(1)(a)-(b) |
| Property tax arrears | Municipal property tax arrears rank in priority over all mortgages under the Municipal Act 2001 | Municipal Act 2001 s.349 |
| Construction lien | Construction lien attaches as of first supply of services or materials; may take priority over advances made after lien arose if mortgagee had notice | Construction Act s.78 |
Mortgage discharge in Ontario requires registration of Form 3 (Discharge of Charge) under the Land Registration Reform Act. Discharge scenarios range from standard payoff-on-closing to complex situations involving mortgagee insolvency or refusal to discharge.
| Situation | Process | Risk |
|---|---|---|
| Standard full payoff on sale | Mortgagee provides Form 3 discharge statement; registered on LTA on closing | Low — title insurance covers gap period between discharge undertaking and registration |
| Partial discharge (one lot from blanket mortgage) | Mortgagee executes partial discharge of charge for specific parcel; balance mortgage continues on remaining parcels | Moderate — ensure discharge covers correct PIN/parcel; blanket mortgage must be carefully reviewed |
| Mortgagee refuses to discharge (paid in full) | Application to court for vesting order or order compelling discharge; or Mortgages Act application | High delay — cloud on title; title insurer will not remove exception without court order or statutory process |
| Mortgagee bankruptcy (institutional lender) | Trustee in bankruptcy or CMHC (if insured) has authority to execute discharge; may require court direction | Complex — confirm authority of party executing discharge; ensure chain of title to discharge authority |
| Private mortgagee deceased | Estate trustee under Certificate of Appointment executes discharge as attorney for deceased mortgagee | Moderate — ensure Certificate of Appointment covers authority; confirm no competing claims to estate |
Under Mortgages Act s.22, the mortgagee must serve a 35-day notice of exercise of power of sale (Form 1). The mortgagor has 35 days to redeem by paying arrears plus costs. If default is not remedied, the mortgagee may proceed to sell. The full mortgage balance becomes due on sale.
Power of sale is the most common remedy: the mortgagee sells the property, applies proceeds to the debt, and any surplus goes to the mortgagor. Foreclosure extinguishes the mortgagor's equity of redemption through court order — the mortgagee takes title and keeps any surplus. Foreclosure requires a court application and is slower; power of sale is faster but the mortgagee remains liable to account for surplus proceeds.
Priority in Ontario is governed by the Land Titles Act (LTA) — first-registered mortgage takes priority (s.72 LTA). A second mortgagee who acquires a first mortgage does not merge if they intend to keep them separate (tacking). Intervening interests registered between a first and second mortgage rank ahead of the second. Discharge of the first does not automatically advance the second if a new first is registered.
Mortgage discharge is registered on title under the Land Registration Reform Act using Form 3 (Discharge of Charge). The mortgagee must provide the discharge within a reasonable time after full payment. If the mortgagee fails to discharge, the mortgagor may apply to court for a vesting order or may use the Mortgages Act to compel discharge. Title insurance can protect against delay or failure to discharge.
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