Foreclosure is a scary word. It’s a highly unpleasant process that involves a homeowner potentially losing possession of their home as a result of failing to keep up with their regular mortgage payments. Unfortunately, many Canadians find themselves in foreclosure every year, or at least in the process of giving up the titles to their homes.
One of the main causes of foreclosures is when homeowners, in an effort to purchase the home entirely, end up taking on far too much mortgage debt to handle. Considering how expensive such a purchase can be, it’s common practice to take out a mortgage to buy a home. However, taking on too much debt in order to claim the title to a property can lead down the dark and ugly path toward foreclosure.
For more information about missing mortgage payments and foreclosure, click here.
Mounting Debt Linked to Increased Risk of Foreclosure
As household debt in Canada continues to grow, homeowners are finding it increasingly difficult to juggle all of their monthly bills, including their mortgages. With interest rates hovering near historic lows, stable inflation, and an increase in housing demand, our country’s level household debt only seems to keep climbing. The more debt being held by the average homeowner, the higher the odds of them defaulting on payments become.
Lenders Exhaust All Options Before Resorting to Foreclosure
It’s no secret that foreclosure is not a pleasant experience for anyone to go through. Not only is it disastrous for the homeowner, but it’s also a thorn in the side of lenders who have to deal with it.
While the homeowner ends up losing their home, the lender is stuck going through the legal troubles and expenses associated with trying to take the property back. The process can be long and drawn-out, exhausting everyone involved. Lenders will attempt all other means of resolving the issue before opting for foreclosure.
Foreclosure Does Not Always Equal Loss of a Home
If you’re a homeowner, it’s critical for you to understand what the foreclosure process involves and how to defend yourself. It’s a common belief that foreclosure means you’ll automatically lose your home, but that’s not always the case.
There are several factors that come into play when you’re faced with foreclosure:
- Your specific financial situation
- Your willingness to work with the lender to seek a resolution
- Whether or not you choose to properly defend your home against foreclosure
Obviously, if you choose not to take any action, you can certainly expect to deal with foreclosure and the loss of your home.
Understanding the Foreclosure Process in Canada
Missing one mortgage payment might not necessarily be a good thing, but it won’t put you in foreclosure right off the bat. Typically, you would have to miss at least a couple of payments before your lender starts the foreclosure process.
As a homeowner, your best bet is to get in touch with your lender right away after having missed even just one mortgage payment to explain why it was missed. Your lender will probably be more willing to take a late payment, work with you to rectify the situation, and get your payment schedule back on track, rather than going through the foreclosure process.
If the missed payments are simply the result of temporary financial problems, you might be able to avoid foreclosure and ask for specific concessions to be made on your mortgage payment schedule.
However, if defaulting on your mortgage payments starts to become a habit, your lender may have no choice but to start the process of taking back possession of your home. If you don’t contact your lender about your missed payments, you could wind up with a written notice from your bank warning you that the foreclosure process will potentially start soon.
Here’s what you need to know about Loan Default.
Recovering Mortgage Debt Differs From One Province to the Next
Foreclosure can happen to homeowners across the country, regardless of what province they live in. However, the process can differ slightly from one province to the next.
Power of Sale More Common in Ontario, Newfoundland, New Brunswick, and PEI Before Foreclosure Process
In Ontario, Newfoundland, New Brunswick, and PEI, lenders might choose to go the Power of Sale route instead in order to avoid having to involve the judicial system. It’s a much quicker process and can potentially lead to a resolution between you and your lender during foreclosure.
But before starting a Power of Sale process, you’ll be served with a written notice and a 35-day “redemption period,” giving you the chance to make good on your home loan and pay back all the arrears you owe. Not only will you need to pay back the mortgage payments that you neglected, you’ll also be slapped with a number of extra penalty fees associated with a Power of Sale.
If all goes well, you may be able to get back in good standing with your mortgage lender. If, however, you don’t take advantage of this redemption period to get your payments back on track, you’ll then be served with a Statement of Claim for Debt and Possession from your lender.
At this point, you’ll be given 20 days to file a Statement of Defence. If the 20 days come and go without a statement filed, you’ll be at increased risk of getting kicked out of your home when a Writ of Possession is obtained by your lender from the court and filed appropriately.
The lender can then sell your home with the help of a real estate agent and any proceeds of the sale will be put towards covering any fees. If there is any money leftover after all dues have been paid off, it will be returned to you. If not, you could find yourself being sued for that remaining balance from your lender.
Foreclosure More Common in BC, Alberta, Manitoba, Saskatchewan, Quebec, and Nova Scotia
The primary difference between a Power of Sale and foreclosure is that the former does not require the use of the court system. That’s why the process is much faster and can even result in a completed process within a few short weeks.
On the other hand, foreclosure can be a painfully long process that often doesn’t see any sign of resolution until months later, sometimes as long as a year. Foreclosures are more common in the provinces of BC, Alberta, Manitoba, Saskatchewan, Quebec, and Nova Scotia.
While lenders can begin the foreclosure process as soon as you miss just one mortgage payment, they typically never do until your missed payments are too far gone. It’s in the lender’s best interests (and obviously yours too) to come up with an agreement. It’s always possible to find a suitable substitute payment plan to put your mortgage payments back on track and avoid foreclosure altogether.
The Process of Foreclosure
If you live outside of Ontario, Newfoundland, New Brunswick, and PEI and your lender is unable to go through Power of Sale, you risk facing foreclosure right from the get-go. This process starts off much like a typical lawsuit in which you become the Defendant and your lender is the Plaintiff. A ‘Statement of Claim’ document will be filed by the lender with the court, a copy of which will be served to you.
After receiving a copy of this document, you have 20 days to file your reply in the form of a Statement of Defence or a Demand for Notice. If you fail to reply, the lender can inform the court that you’re in default regarding the court action (not to be confused with being ‘in default’ with your mortgage).
Failing to reply will communicate to the court that you’ve chosen not to fight the foreclosure process. At this point, you have no other avenues to take to defend yourself. Your lender will eventually apply for a remedy with the court as a means of getting back the money they loaned out to you to finance your home.
At this point, the court will likely issue a Redemption Order, which gives you a certain amount of time to bring your mortgage up to snuff or pay it off completely. If you can come up with enough money, you can effectively stop the foreclosure process at this point.
However, if the court has reason to believe that you don’t have the funds, it can go straight to issuing an Order for Foreclosure without even bothering with a Redemption Order. In this case, the property will be directly transferred to the lender.
The court may also decide on an Order of Sale instead, which involves a sale of the home under the court’s control. You’ll then have a maximum of 30 days to vacate the home after the lender (or a new buyer) has over possession.
Need more information about foreclosures in Canada? Read this.
What Can You Do to Avoid Foreclosure?
While foreclosure may be imminent for some, there are definitely some things you can do to avoid this ugly process and keep your home and your credit intact.
- Understand the terms of your mortgage before you take one out
- Speak with your lender while you’re still above water
- Consult with a low or no-cost housing counsellor
- Contact a real estate lawyer
- Find out if there are any home loan modifications you can take advantage of
- Sell your home and downgrade before missing a payment
Of course, the best way to avoid foreclosure is not to purchase a home at a price that your current income may not be able to support in the first place. That said, there are avenues you can take to alleviate the situation and potentially steer clear of foreclosure before it hits.
Here are 5 Mortgage Mistakes you should avoid.
The Bottom Line
Foreclosure is certainly not a pleasant experience. Losing your home can be emotionally devastating and can leave a huge dent in your financial situation and your credit rating.
If you’re having trouble keeping up with your mortgage payments, you’d be well advised to either contact your lender about your situation or speak with a financial advisor who can guide you in the best direction to avoid foreclosure or Power of Sale.