Found yourself in a financially tough spot? Having trouble making your monthly mortgage payments? Be careful – foreclosure could be around the corner. While it is generally in the interested of both the bank and you, the borrower, to avoid foreclosure proceedings, sometimes there is no other option.
A number of things happen when a homeowner defaults on their mortgage. Of course, the first step is to try and get your mortgage payments back on track. If your financial problems are temporary, you might be able to arrange some concessions on your payment schedule. However, I wouldn’t hold your breath. If a resolution isn’t reached, the bank will take steps to recover their debt. The most common forms include a Power of Sale and a Judicial Foreclosure.
What is a Power of Sale?
A power of sale in Canada allows the bank to sell a foreclosed property quickly and without the hassle of the court system. This form of foreclosure increases the chances of a resolution being reached between the lender and the borrower.
Before your lender can put your home up for a power of sale, they must first notify you and provide you with a redemption period of 35 days. If you are able to pay your arrears during this time period the bank will be forced to back off and you will retain possession of your home. It’s important to note that you will also be required to pay several charges associated with a power of sale, even if you are able to clear your arrears prior to putting the sale through.
If you’re unable to settle your outstanding debt with your lender, the next step involves you being served a Statement of Claim for Debt and Possession. At this point, you will have 20 days to file a Statement of Defence. If you fail to file this statement with the court, your lender is legally allowed to go ahead and obtain a Writ of Possession from the court. Once filed, the process of eviction is activated.
Once you have been evicted from the home, your lender will arrange to auction off your property with the help of a real estate agent. Any money that is recouped through the sale of this property will be used to cover any of your outstanding debts and fees. If there is a balance left after the sale, it is returned to you. If the sale is unable to cover your outstanding debts, and you do not have mortgage default insurance in place, the lender has the right to sue you for the remaining balance.
What is Judicial Foreclosure?
The judicial foreclosure process requires intensive involvement from the court system. The process is therefore much slower than a power of sale. In most cases, it will take as long as six months to complete. The judicial foreclosure process only takes place in British Columbia, Alberta, Manitoba, Saskatchewan and Nova Scotia.
This process differs from a power of sale in one significant way: once the lender has obtained a Certificate of Foreclosure from the court, the ownership of the property is transferred to the lender. At this time, you have no right on the property and can make no claims to any capital gains that could result from the property’s sale.
Worried that your home may be on the brink of foreclosure? Contact a mortgage broker at FamilyLending.ca for expert assistance.