Sep 20, 2026
Handing over the keys and walking away worked for plenty of American homeowners after the 2008 housing market crash — when homes were worth less than the mortgage debt owed. But walking away isn’t an option in Canada. If a Canadian homeowner owes a mortgage balance that is higher than what the home is worth and you can’t cover the gap, that shortfall doesn’t disappear when the house sells — it follows you as a debt.
Over-mortgaged, underwater mortgage, negative-equity: These are terms that most homeowners never want to hear, let alone face. But what surprises most Canadians is that even if this does happen — say, a homeowner owes $950,000 on a home now worth $850,000 — that shortfall is the homeowner’s responsibility. And in most cases, walking away — either by selling or default — doesn’t erase what is owed; It just changes what kind of debt it is and how it’s treated.
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- Most of Canada has full recourse mortgages — if your home sells for less than you owe, the mortgage lender (or its insurer) can pursue you for the difference
- Alberta and Saskatchewan protect borrowers with conventional, uninsured purchase mortgages from that pursuit; however, insured, refinanced and home equity line of credit debt isn’t covered
- A shortfall becomes unsecured debt, which stays with the borrower until it’s paid or the borrower pursues a consumer proposal or bankruptcy
What ‘full recourse’ actually means
Canada, unlike much of the U.S., runs on full recourse mortgage law in most provinces. That means if your home is sold for less than what you owe, your lender can pursue you personally for the difference. If a lender chooses this action and wins the court action, then this judgment stays with you indefinitely, since this kind of judgment doesn’t have an expiry date.
The indefinite due date is an issue, but the real problem is the way this debt can now be handled. According to J. Douglas Hoyes, a partner at Hoyes, Michalos & Associates, by selling or disposing of the asset, the debt moves from being a secured mortgage loan to an unsecured loan — meaning loan collectors can pursue wage garnishment or, if the mortgage was insured, seizure of a tax refund.
Why Canadians with less than 20% down need to pay attention
This is a particular issue for the 60% of new homeowners who bought a home with a down payment of less than 20% of the purchase price. Because if defaulted and couldn’t pay back the full sum of the loan, then the mortgage default insurer can come after you direct to recover the money.
So, how does this work? In Canada, if you put down less than 20% of the home’s purchase price then mortgage default insurance is mandatory. This insurance doesn’t protect you, it protects the lender — in case you stop paying. (The main providers of mortgage default insurance are the Crown corporation Canada Mortgage and Housing Corporation (CMHC), Sagen (formerly Genworth Canada), and Canada Guaranty.)
If you default and the bank forecloses or forces a sale of your home, but the home sells for less than what you still owe, then the bank will file a claim with the insurer (CMHC, Sagen, or Canada Guaranty) and get repaid what is contractually owed.
Once the insurer pays the bank’s claim, the insurer now has the right to come after you directly to recover that money. So, the debt doesn’t disappear just because the bank debt was repaid; the debt is effectively transferred to a different creditor (the insurer), who can pursue you for the remaining balance, garnish wages, or take other collection action depending on the province.
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2 provinces where walking away can actually work
While most Canadian mortgages are full recourse loans, there are two provinces where walking away from a default mortgage debt can work — but the exception is narrower than it sounds.
In Alberta, a lender cannot get a deficiency judgment against an individual with a conventional (aka: uninsured) mortgage, only against high-ratio insured mortgages or loans under the National Housing Act. However, if a deficiency judgment is issued, it stays enforceable for 10 years and can be renewed by the lender or insurer before it expires.
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In Saskatchewan, the Limitation of Civil Rights Act works to limit what the lender can pursue. According to an article authored by Kelly Canham, a partner at Mcdougall Gauley LLP, if a mortgage was used to buy property, the lender’s remedy is limited to the land itself, with no right to sue on the shortfall. But there’s a catch: If a Saskatchewan homeowner refinances that mortgage, pulls equity through a HELOC, or puts less than 20% down, then this protection can disappear.
What really happens if you stop paying
Aside from Alberta and Saskatchewan’s narrow carve-out, missing mortgage payments can set off a fairly predictable sequence of events for virtually all property owners in Canada. First, you’ll get a notice from the lender, then power of sale (the common route in Ontario) or judicial foreclosure. If there’s a shortfall, there’s a pursuit for the difference.
Keep in mind, a mortgage default or power of sale typically stays on a Canadian credit report for several years, making it harder to qualify for any type financing.
Underwater mortgage or struggling to make payments? What to do instead
For anyone underwater and struggling to keep up, the options are simple and straightforward:
- Talk to the lender. While it might feel intimidating, the first and best call in this situation is to your lender. Almost every lender in Canada has a process for helping homeowners to work out a manageable repayment plan when things get tough. Make this call, first, before any missed payments for the best possible options.
- Try selling the home directly rather than letting the lender do it. A sale prompted by the homeowner will usually result in a higher sale price.
- If a shortfall remains, keep in mind that a consumer proposal or personal bankruptcy can write off that debt as unsecured — Ontario licensed insolvency trustees call this one of the most misunderstood parts of Canadian mortgage law (8). A consumer proposal covers up to $250,000 in unsecured debt; larger shortfalls need a Division I proposal or bankruptcy instead (8). But there are serious implications for taking this route, so get informed, first.
It might be tempting to walk away once you’re underwater and facing a power of sale or foreclosure, but before you give up, find out what the law in your province actually says — the rules on deficiency claims and your rights vary significantly from one province to another.
If you’re struggling to keep up with mortgage payments, don’t wait for the situation to escalate. Reach out to your lender or a credit counsellor now — the earlier you ask for help, the more options you have.
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Romana King, Senior Editor at Money.ca, also writes for various North American publications and the RKHomeowner blog. Her book, House Poor No More, is an Amazon bestseller and five-time award winner, including the 2022 New York CPA Society's Excellence in Financial Journalism (EFJ) Book Award.
