How sale proceeds are applied under Ontario law
Section 27 of the Mortgages Act sets the order of distribution: sale expenses, interest/costs, principal, subsequent encumbrancers, and then any residue to the mortgagor.
If proceeds do not satisfy the debt, lenders may pursue remaining liability where contractual and procedural requirements are met.
Recourse risk is real in Ontario
A common public misunderstanding is that handing over keys always ends the debt. In Ontario, personal covenant exposure can remain after a distressed sale depending on mortgage terms and litigation steps.
Borrowers facing shortfall risk should seek coordinated advice from real estate litigation counsel and, where necessary, a licensed insolvency professional.
Garnishment headlines are often exaggerated
Under section 7 of Ontario's Wages Act, 80% of wages are generally exempt from seizure or garnishment (meaning 20% is typically available), with different rules for support enforcement.
Courts can vary the exemption on motion, so case-specific facts still matter. Public messaging should present this as a legal range, not a fixed fear statistic.
Frequently Asked Questions
Does the lender have to return surplus money if a sale over-recovers?
Yes. The Mortgages Act distribution sequence requires residue to be paid to the mortgagor after applicable prior payments.
Can the lender still sue after selling the property?
Potentially yes, depending on the mortgage covenant, amount recovered, limitation issues, and litigation history.
Is wage garnishment always 50%?
No. For ordinary debts, Ontario's default exemption is generally 80% of wages, subject to judicial variation and special support rules.
Sources
Legal Notice
This publication is general information only and is not legal advice. Obtain Ontario legal advice for your specific mortgage, tenancy, and litigation facts.