Explaining Foreclosures in Canada

By Caitlin in Mortgage
Explaining Foreclosures in Canada

Each month represents a slide backwards in your finances. The credit card you used last month to buy groceries is maxed out, and you are in the middle of high level negotiations to have your power turned back on. Meanwhile your refrigerator is as empty as your bank account, and you are receiving threatening letters from your mortgage lender. You are so underwater on your mortgage payments that if you could afford it you would consider buying snorkeling gear.

Unfortunately, although our Canadian foreclosure rates are no where near the levels suffered south of the border, for that one half of one percent of Canadians who find themselves caught in the grip of the foreclosure process, it can be devastating and disconcerting process to try and navigate through. Canadian homeowners facing foreclosure proceedings are looking at two distinct possibilities to end their dilemma: Power of Sale and Judicial Foreclosures.

Power of Sale…

Power of sale represents the first port of call for those looking to abandon their sinking mortgage. A power of sale is a mechanism that allows the bank to sell a foreclosed property without the intersession of the legal system. Generally speaking, this type of foreclosure is the most likely to result in a resolution between the homeowner and lender without the need to go to court.

For a power of sale to be initiated, your lender must first notify you of the impending action and allow for a 35 day response period to catch up on the debt. Should your negotiation with the electric company turn out favorably, and you manage to settle your arrears in this time period the bank will be forced to suspend their actions. It should be noted that this reprieve comes at a cost and you can expect to have to pony up additional funds that will be assessed several fees and charges that are associated with the initiation of a power of sale. These additional fees will be assessed even if you get your payments up to date.

In the event that you’re unable to cobble together the necessary funds within the allotted 35 days, the next thing you will see is a processor server on your doorstep with a Statement of Claim for Debt and Possession. The service of this document comes with a 20-day window to file a response in court called a “Statement of Defense.” Failure to file this will lead to a default judgment and the awarding by the court a Writ of Possession to the lender. Once the bank files the Writ of Possession the eviction process is activated.

Once evicted, the bank will auction your former casa and use the proceeds to pay off the debt. Should the final auction bid exceed the amount you owed on the property you will receive the balance however, should the auction price fall below your contracted debt you will still find yourself on the hook for paying what’s left of the balance. If you do not have mortgage default insurance in place the lender can seek further legal action that may result in wage garnishment and other financial remedies.

Judicial Foreclosure…

A more heavy-handed method of resolution is the Judicial Foreclosure. Whereas the power of sale is a relatively quick, non-judicial way of resolving an underwater mortgage, the judicial foreclosure process deeply involves the court system and can take as long as half a year to accomplish. The Judicial Foreclosure option is an available option in just five provinces: British Columbia, Alberta, Manitoba, Saskatchewan, and Nova Scotia.

In addition to taking considerably longer than a power of sale proceeding, a Judicial Foreclosure differs is one major way: ownership of the property is transferred to the lender along with the Certificate of Foreclosure. As such, you will forfeit any claims to excess funds that are accrued at auction. Additionally, should your home be forfeit to either a power of sale or judicial foreclosure process the negative information will remain on your credit record for six years.


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