It’s definitely one of the most stressful situations you could be dealing with: the bank has sent you a letter and they are saying they want to foreclose on your home. We know it hasn’t been easy lately, and we know this is not helping, but thousands of families across Canada are in a similar situation.
Bank foreclosures in Canada aren’t uncommon, but they are stressful
Depending where you are in Canada, one of these two options are more common: the power of sale and judicial foreclosure. Neither of these is ideal, but since the whole situation is not great, it’s important to know exactly what rights and remedies you have at your disposal.
You won’t be the one deciding which of these two scenarios will happen to you, but in Canada, power of sale is the lender’s first choice in Ontario, New Brunswick, Newfoundland and Labrador, and Prince Edward Island,and the judicial foreclosure is a process banks use to foreclose on a mortgages in British Columbia, Alberta, Quebec, Manitoba, Saskatchewan, and Nova Scotia
Let’s take a look at both of these types of foreclosures, and then give you some creative solutions. Bear in mind, this article is not legal advice and should not be read as such. Our goal is to provide you with some basic awareness of the options, your rights, and the process that you may now be facing.
The power of sale is a process that requires less legal involvement and more cooperation. This is the most common type of foreclosure in Canada, and is the prefered process for Ontario.
First, during a property foreclosure, the power of sale process will allow for you to potentially keep your home. But it’s not going to be cheap.
If you have defaulted on your payment for longer than 15 days, the lender has the right to send you a notice of sale or notice of sale under mortgage. A notice of sale is the first step towards the power of sale in Ontario.
Fifteen days is not a lot of time. Maybe you forgot. Maybe you were on vacation. Maybe you switched jobs and needed to wait for new payroll to come in. It seems harsh, but that is the lender’s legal right.
Your first point of action may be to call your lender and ask them if you can just negotiate to pay your mortgage before the actual power of sale starts. If they say yes, you’re doing great. If they say that the matter has already been handed over to the legal team, then you may be in a bit of a trouble.
Legal team equals more expenses, and they generally do not negotiate, unless it involves a full payment, and payment of legal fees.
Foreclosure Solution #1: At this point you may be allowed a second mortgage to place behind the first one, to pay off any arrears, administrative and legal fees, and bring the mortgage back into good standing.
Borrowers have the right to redeem their home equity at any time until the home is sold and closes. In fact, with few exceptions, the power of sale is a specific protection for the borrower where for 37 days the lender cannot take any other action and the owner has the ability to return the loan to good standing.
Before the power of sale can actually begin, the foreclosing lender needs to serve you notice and allow for a redemption for a certain period of days, which varies by province. In Ontario, this time period is 37.
This means that you have 37 days to clear the mortgage debt in full, and bring your mortgage in good standing with the lender. If the power of sale is statutory, you have 45 days to come up with the money. Under the mortgage act, the lender has no right to commence any further action against you until the notice of sale expires.
In the situation where you’re unable to bring your mortgage up to good standing, after 37 days, the lender will likely next serve you with a statement of claim for the outstanding debt, as well as possession of the property. Once you get this, you have 20 days to file a statement of defense response in court. Do this. Not filing a response in court will lead to a default judgement and award a writ of possession to the lender. However be aware, its very unlikely that you will be successful in mounting a defense unless there are real issues with your lender. Non-payment and the enforcement of the security is the right of the lender.
Many people panic at this stage. It’s imperative that if you have equity in the property, you focus on solutions. Arranging a second mortgage, or paying out the defaulted mortgage in its entirety with a new first mortgage are the most common remedies.
If the court decides against you, the lender can activate the eviction process. Once the eviction process is completed, the lender will auction off your house and use the funds to pay off the debt. If the final action bid is larger than the amount you owed on the house, you will receive the balance; after the fees have been covered. If they do not sell the house for enough money to cover the debt, the lender will still hold you responsible to cover that balance.
These are not typical loans. Ensure you are working with a specialist, like CMI, otherwise you run the risk of losing your home when you may have been able to save it. Bear in mind, if you have limited home equity, its unlikely anything other than the sale of the property is an option, but speak to a specialist.
Okay. We told you there was another course of action that’s not the power of sale. The second one sounds more menacing: the judicial foreclosure in British Columbia and Alberta.
Judicial foreclosures are popular in British Columbia and Alberta, as the courts control the foreclosure processes in those provinces. In a judicial foreclosure, it is really important you don’t panic and end up doing nothing. It’s true that the bank foreclosure doesn’t necessarily mean you will lose your home, but doing nothing when you’re first served with papers guarantees it.
Foreclosure Solution #2: Speak with your mortgage specialist to discuss options for consolidating your debt – both mortgage and consumer, into a new first mortgage.
A judicial property foreclosure will begin when the lender, now known as the plaintiff, files a statement of claim in the court. The plaintiff will also serve you, now a defendant, with a copy of the statement of claim. Once you’re served with a copy of the statement, you have 20 days to submit your reply. This is either done in a form of a statement of defense or a demand for notice. These date requirements vary by province, so be sure to speak with a mortgage expert as well as seek legal counsel. This article is not legal advice and should not be construed as such.
Whichever one you chose, do it. If you do not do this, you will default your position, and the court will not take your opinion when they make their decision. Which means you will very likely lose your home.
However, if you do submit a statement or a demand to the court, they will review your situation and possibly issue a redemption order. This gives you time to fix your situation by bringing your mortgage to good standing and get out of foreclosure altogether. A redemption order typically lasts six months.
This is not an ideal situation. Actually, it’s scary and stressful. However, not panicking, taking action, and learning more about the process is the best you can do to try to get out of it without losing your home.
Foreclosure Solution #3: Speak with your lender or mortgage specialist to see if there are any options for loan modification to give you some relief in the short-term.
If you face a bank foreclosure or power of sale in Canada, be sure to consult with experts, and most importantly, don’t do nothing!