The mortgage foreclosure process is carried out when the lender does not receive the repayments on a mortgage loan taken by a borrower according to the terms and conditions of the contract. A default in payment by the borrower translates into a loss for the lenders, and they are usually quick to react to check these losses.
In some cases, if you approach the lender when you are about to miss a payment, the lender may agree to a mortgage loan modification, which means that you may be asked to repay in smaller instalments and the total repayment period may be extended. Similarly, if you are able to convince the lender that you will soon be able to get the mortgage back on schedule, the lender may allow a brief pause in payments to allow you to recover financially.
However, if you fail to reach any such settlement and keep missing monthly payments, you will be sent a letter by the lender, requesting you to clear the arrears, including the penalties. If you ignore this letter and no payment is made, the lenderâ€™s attorney will send you a formal Demand Letter asking for the payment. If both these remedies fail, then depending on the contract and the province, the lender will resort to either Power of Sale or Judicial Foreclosure.
Power of Sale, which is often used by lenders in Ontario, is a remedy in which the lender has the right to initiate action against the defaulting borrower without the intervention of the court. The lender can seize the property to recover the loan amount, with interest, penalties, and all other fees. The funds received from the sale are used to clear these dues and any other debts linked to the property. The remaining amount, if any, is returned to the borrower. On the other hand, if any dues remain even after the sale of the property, the lender has the right to sue the borrower for the remaining amount.
A lender can initiate the power of sale process 15 days after a borrowerâ€™s loan becomes delinquent. However, the lender has to provide a 35 day period of redemption, during which if the borrower pays the total dues, the sale of property is terminated. Usually the entire Power of Sale process is completed within 3-5 months.
Another method adopted by lenders to recover their debt is called Judicial Foreclosure. It is a time consuming process in which the Court grants the ownership of the property to the lender, and the borrower loses his or her rights over the property. An important aspect of Judicial Foreclosure is that the borrower also loses out on any profits that are made from the sale of the property. However, if there is a deficiency even after the sale, the lender has the right to sue the borrower for the remaining dues.
Although the major aspects of these two remedies remain the same and the end result is the borrower losing his or her rights over the property, there can be some small differences in the mortgage foreclosure process from one location to another in Canada.