Foreclosure and how it works.

Foreclosure is an intimidating and unnerving experience for homeowners who are about to lose their homes. If you are facing foreclosure, there are still options available to help you with the process. Let me give you an understanding of what it is and how it works. E&OE

Call me at 604-818-2581


What is Foreclosure?

Foreclosure is a legal action taken by the lender when a mortgagor stops making their mortgage payments. Foreclosure allows the lender to take over the property for the purpose of selling the property. This enables the lender to recuperate outstanding mortgage debt on the property. The lender must first obtain permission from the court prior to proceeding.

What happens if you make a late payment OR miss a mortgage payment?

You will not automatically lose your home. Lenders typically do not want to foreclose if they don’t have to because it is an expensive and time-consuming process. Foreclosure proceeding does not start until 2-3 months of payment arrears. Normally a lender will send out a letter requesting payment. If the mortgagor does not respond, the lender will start to foreclose and sue the mortgagor at the same time.
In cases like a short – term challenges, such a temporary layoff, you may be able to negotiate to make smaller payment for a short period of time, and have the shortfall added to the total mortgage amount of your mortgage. Or you may be able to make smaller payment and then make larger catch up payments once you are back on track.
Most lenders want to work with the mortgagor to bring payments current and up to date rather than starting expensive foreclosure proceedings in court. There are laws in place to help you if you have a good chance of paying the arrears and if you are trying to get your finances in order. Only in the worst-case scenario may you lose your home and any equity you might have built up in it.


When the lender starts foreclosure, what happens first?

The lender applies to the courts for an “ORDER NISI”, which is the first step of foreclosure proceeding. The lender must register with the Supreme Court registry where the mortgagor’s home is located, unless the mortgagor agrees otherwise.
You will receive a "petition for foreclosure", which is the lender's application to the court. At the same time the lender may also sue you for any short fall on the mortgage amount still owed to the bank.

You must file a document called an “Appearance” within seven days of getting the petition.
Here’s how and why.

You can get an "Appearance form" from the court registry. You must file the Appearance at the court address shown on the petition. Once you do this, no one can take any steps in the foreclosure without notifying you. If you don’t file an Appearance, the foreclosure will go ahead without you, and you won’t be able to protect yourself. After you file the Appearance, you will receive a document called a “Notice of Hearing,” this document tells you when the lender will ask the judge for the order nisi to start the foreclosure.

What happens at the hearing?

The court will give the lender an order nisi, but in most cases, it will also give you time to “redeem” the mortgage by paying the full amount you owe, plus interest, costs and taxes. This time is called the “redemption period” and it’s typically 6 months. But sometimes the lender will ask the court for a shorter redemption period. The court can make an order to sell your house at any time, including at the "order nisi" stage.
It is a good idea to attend the court hearing is to ask the judge for as much time as possible to get the money to pay off the mortgage or sell the house. If you need more time, you can ask for an extension. If you ask for a long redemption period or an extension, the court will want to know what you have done to pay off the mortgage and what chance you have of paying the mortgage or selling the house on your own or through your own real estate agent. It is recommended you use a lawyer in this case because a lawyer can advise you on your options, including possible options on where to get refinancing.
When the redemption period ends, the court can give the lender a final order of foreclosure – “order absolute” - Or, the lender can ask the court for the right to have a lender selected real estate agent to list your house for sale. If there are other people or companies with a charge against your house, besides the lender who started to foreclose, they may ask for the right to sell your house. If the court gives the lender or anyone else the right to sell your house, it gives them “conduct of sale.” If this happens, you cannot sell the house yourself. If anyone asks the court for conduct of sale for your house, you should ask the court to give you exclusive conduct instead. This means that only you are in charge of selling it. Or you can ask the court to give you at least joint conduct with the other person or company, so you have some control.


There are two things to consider during the redemption period
1. You can pay off the lender that started the foreclosure. To get the money for this, you can try to borrow from another lender or a relative, at a lower interest rate or over a longer repayment period. That would let you pay off the first mortgage and lower your monthly payments.
2. Your can sell the house, preferably using your own real estate agent. You may then choose the Realtor you trust the most or feel most comfortable with. If you sell the house, you can use the money from the sale, first to pay any tax you owe, and then to pay the mortgage and other charges registered against the title, including court costs. If there’s any equity(money) left over, it is yours to keep. But if the money from selling your house doesn’t completely pay off all of the lenders, you may have to pay them the difference. Meanwhile, if the lender or anyone else with a charge against your house gets an offer to buy your house, they can apply to court for an order authorizing that sale.

What if you have no equity in your home?

If you owe more than what the house is worth, you will probably want to get out of the situation with as little expense and trouble as possible. It is recommended that you take action instead of ignoring the problem. You may want to work with the lender to minimize costs by agreeing to the foreclosure. Normally, you would only do this if the lender will give you a full release from your mortgage, meaning you won’t owe the lender any more money. If the lender won’t agree to this, you can just let the foreclosure proceedings go ahead and use the time as a rent-free period to get your finances back in order. If any other people or companies with debts registered against your house are not paid from the money from selling your house in the foreclosure, you will still have to deal with them. Otherwise, they can sue you for any money you still owe them.

The lender can apply to the court for an “order absolute”

The final order for foreclosure is known as an “order absolute,” and it comes after the redemption period ends. If the lender applies for an order absolute and the court grants it, the house then belongs to the lender and you have to leave it. You lose all rights to the house. You will no longer owe the lender any money, but if anyone registered a debt against your house after the mortgage, you’ll still owe that money. In exceptional cases, you can apply to the court for relief from losing your house if you can pay the balance in full. Then the court can order the lender to transfer the house back to you.

If the court calls for an "order absolute", you owe nothing more to the lender
When the lender sells your house after getting an order absolute, but doesn’t get enough money from the sale to pay off the mortgage, you don’t have to pay the difference. But typically the lenders do not ask the court for an order absolute. Instead, they will usually sue you when they start to foreclose and ask the court for an order to sell your house to pay off the loan. If the money from selling your home doesn’t completely pay off the mortgage loan, the lender can try to collect the difference from you.

What happens when there is a second mortgage and/or other charges registered against the property?

Any mortgages or charges registered before the lender’s mortgage continue and are still valid. But any that were registered after the lender’s mortgage are canceled and the holders of those charges lose their security. For example, if you have two mortgages on your house, and the first lender forecloses, the second lender will have to pay off the first lender or lose its security. Then the second lender would have to try to get you to pay its loss.

Summary

A mortgage is a contract to repay a loan, secured with a charge on land. It’s registered against your property in the Land Title Office. If you fail to pay the mortgage, for example, by falling behind in your mortgage payments, the lender may start to foreclose. Then if you can’t pay the mortgage loan in full, either by selling your house or in some other way, the lender can take your property or sell it to pay off the loan.
If you receive a foreclosure petition, get legal advice. It doesn’t cost much to have a first meeting with a lawyer. E&OE

Ellie Beaulieu
604-818-2581