Your Landlord Is in Power of Sale: Tenant Rights When the Mortgage Defaults in Ontario

Under Ontario’s Residential Tenancies Act (2006), covenants about the rental unit run with the land — meaning whoever acquires the property takes it subject to your existing tenancy and the landlord’s obligations. A power of sale or foreclosure is not, on its own, a ground to end your lease.

Under Ontario’s Mortgages Act, a lender that obtains the property by power of sale or foreclosure — or becomes a mortgagee in possession — is deemed to be the landlord under your tenancy agreement, at the same rent and on the same terms, and is bound by the RTA.

According to Ontario law and Steps to Justice (CLEO, Ontario’s legal-aid resource), the lender or new owner cannot self-evict you — they must go through the RTA and obtain an eviction order from the LTB. A verbal demand or a letter from the bank is not an eviction order.

Step 1: Don't move out on a letter or a verbal demand

Whether it’s the landlord, the bank, or someone claiming to be the new owner — being told to leave verbally or by letter is not a lawful eviction. You only have to move when the LTB issues an eviction order. Stay put and don’t surrender the protection the law gives you.

Step 2: Keep paying rent, in full and on time

This is the most overlooked and most dangerous point: not paying rent is a separate, valid ground for eviction (an N4). While the property is in power of sale, keep paying. If you get evicted for non-payment, every other protection is gone.

Step 3: Confirm who the new landlord is, then pay them after written notice

Once the lender or new owner takes possession, they become your landlord (Mortgages Act). But only pay rent to them after you receive written notice identifying the new landlord and where rent goes. If you’re unsure, ask for written direction and keep documenting — don’t simply stop paying.

Step 4: Document everything

Your lease, every rent receipt, proof of your last-month-rent (LMR) deposit, and every notice — keep it all. Whether you recover your deposit often comes down to whether you can prove you paid it.

Step 5: Scrutinize any N12 notice

The only sale-related ground to end a tenancy is “purchaser’s own use,” served on an N12, and only for buildings of three units or fewer (a house, a condo unit, or a building with 3 or fewer units). Check: Is it the correct form? Is the termination date at least 60 days out and on the last day of a rental period? Has compensation equal to one month’s rent been offered? If any box isn’t ticked, the N12 is challengeable.

The current rule: an N12 needs at least 60 days’ notice plus one month’s rent as compensation (or an acceptable alternate unit). Ontario’s Bill 60, passed in late 2025, may change this (reports describe a 120-day-notice option that waives compensation), but as of this writing it is unverified whether those changes are in force — confirm on ontario.ca / Tribunals Ontario. Until then, rely on the current “60 days + one month” rule and don’t be misled by rules that aren’t yet law.

Step 6: If you dispute the N12, you don't have to leave on that date

If you don’t agree, you don’t have to move on the N12 date. The landlord must then file an L2 application with the LTB and prove, at a hearing, that the purchaser genuinely intends to move in. Until that hearing, you can stay.

Step 7: Watch for bad faith

If the new owner or their family member serves an N12 to get you out and then never moves in (re-rents or re-sells), you can apply to the LTB for compensation or even reinstatement. That’s a bad-faith N12.

Step 8: Get free legal help early

Contact your local community legal clinic, the Advocacy Centre for Tenants Ontario (ACTO), or the LTB. Ontario has strong free tenant-law support — the earlier you engage, the better positioned you are.

This is the one area Ontario law does not settle cleanly. Per practitioner commentary, priority between a tenant’s deposit and the lender is decided case by case; in at least one case a mortgagee in possession was held responsible for the deposit the tenant had paid the original landlord — but that is not guaranteed. Your best protection: keep proof you paid the deposit, and remember that a last-month-rent deposit can be applied to your actual final month of tenancy.

Q: My landlord's house is in power of sale. Can the bank just kick me out?

No. Under Ontario’s Mortgages Act, anyone exercising rights under a mortgage can only obtain possession in accordance with the Residential Tenancies Act — which means only through an LTB eviction order. The lender that takes the property is deemed to be your landlord and inherits your lease.

Q: Does my lease survive if the property is sold under power of sale?

Yes. The RTA makes tenancy covenants run with the land, so the new owner takes the property subject to your existing tenancy at the same rent and terms. A sale or power of sale is not, by itself, a ground to end your tenancy.

Q: Who do I pay rent to after the lender takes over?

Keep paying — never stop. Once the lender or new owner takes possession they become your landlord, but pay them only after you get written notice identifying them and where rent goes. If unsure, request written direction and keep documenting; stopping payment creates a separate ground to evict you.

Q: What happens to my last-month deposit if my old landlord loses the property?

Ontario law doesn’t settle this cleanly — it’s decided case by case. In at least one case the lender that took possession was held responsible for the deposit, but it isn’t guaranteed. Keep proof you paid it, and remember the last-month deposit can be applied to your actual final month.