Understanding the Foreclosure Process
Foreclosure refers to the lender receiving permission to sell a home because the homeowner was unable to meet their mortgage payments. In Canada, the rules of foreclosure will vary based on province, and may or may not involve the court system as an intermediary. The foreclosure process can be a lengthy and complicated one, so it helps for Panorama Hills homeowners to do their homework.
Lenders Will Wait
If a homeowner is unable to come up with their payment, they may have up to several months before their lender will even begin foreclosure proceedings. Ultimately, this depends on the lender, but homeowners shouldn't assume anything just because they took an unexpected hit to their finances. Instead, it's a smart idea to watch for communication from the lender, or better yet, to start a dialog before any official notices appear at their door.
Judicial Vs. Power of Sale
A judicial sale will have the court weigh-in on the foreclosure, whereas a power of sale will leave many of the details to the lender. Homeowners living in Quebec, Manitoba, BC, and Alberta (among others) are likely to have their lenders go through a judicial sale, whereas those living in Ontario, Newfoundland, or New Brunswick (among others) will be subject to a power of sale.
When the court reviews a foreclosure, it is not an open-and-shut matter. To even start the process, the lender has to formally sue the owner. At every stage of the sale, the lender will have to get separate approvals to move forward, and the owners will be given an opportunity to tell their story too. It may take a while to complete, giving homeowners the chance to work out an arrangement on their behalf.
On the other hand, a power of sale can be started with a simple notice to the buyer, and requires far less court approval. Most homeowners can find the terms of a power of sale in their mortgage documents, but if they can't, the Canadian Mortgage Act still allows power of sale if the buyer hasn't paid their mortgage in three months or longer.
What Is a Deficiency Judgment?
A deficiency judgment refers to the homeowner paying any additional debts to the lender after the sale of the home. If the proceeds of the home sale after foreclosure don't cover the amount owed, the lender can petition the courts to place the burden back on the owner. This is known as unsecured debt, meaning the lender is not allowed to repossess any additional property of the homeowner if they can't pay it.
The lender is required to try to sell the property for its fair market value. If the homeowner suspects that the lender didn't make a reasonable attempt (and then demanded additional compensation), then the owner is allowed to sue the lender and contest the charges.
This clause in Canadian mortgage law is not well-defined and can be complicated by homeowner expectations. If the homeowner believes that their home is worth a certain amount, they may feel the lender didn't do enough to recoup the assessed value (even when the courts would say they did). Typically, the discrepancy between the sale price and the home's value will need to be exceptionally obvious before the courts rule in the homeowner's favor.
Can Owners Negotiate with Lenders?
Owners are allowed to negotiate with lenders, but lenders aren't required to engage. For the most part, lenders have the majority of control in a foreclosure—even if it's a judicial one. Because Canadian default is exceptionally rare, these laws are unlikely to change anytime soon. In a foreclosure, the lender becomes the full owner of the property. If the lender ends up profiting off the home sale (i.e., making more than the homeowner owes), the lender is entitled to keep any leftover funds.
Here are a few steps owners can take to lessen the impact of a foreclosure:
- Legal help: Getting immediate counseling can make it easier to navigate either type of foreclosure, but can be especially useful in a judicial proceeding. While an added expense, it may actually save a homeowner's finances by preventing bankruptcy or additional debt.
- Get the details: Lenders will usually grant the homeowner some amount of time to fully reverse the foreclosure. Typically, it's six months, but this is not always the case. For a judicial foreclosure, the court will lay out the stipulations in black and white, but a power of sale may not always be as apparent. Owners can also petition for additional time if they need to.
While the odds may not always be in the owner's favor, this does not make the owners powerless. As mentioned, it can help to stay in touch with the lender as soon as the buyer knows they won't be able to satisfy their mortgage payments. Even if the lender is entitled to a power of sale, few want to start the process if they can help it.