I've bought properties below the mortgage amount. If they are cmhc insured, the bank gets paid regardless, in some provinces cmhc may go after the former owner for compensation as well. The banks do have to prove they tried to sell it and get the highest possible price, but sometimes that price is well below what it sold for in the past.
I've also bought properties from people below the amount they owed. I did this last year when I bought a place from a lawer getting a divorce, I actually had to wait a couple of days because the bank was waiting for him to pay the difference between the sale price and what he owed.
Now, these aren't common everyday deals, but they do happen.