Understanding Mortgage Foreclosure in Canada
Sometimes, life can be full of surprises, as we learned from COVID-19. Even with careful planning, we can encounter unexpected occurrences. When you purchase a home, you might have more significant plans for it. You imagine the different projects you’ll do and the memories you’ll make there. But you probably didn’t think about struggling to pay your mortgage. Whether you’re facing financial problems or not, it’s essential to know what you can do if you cannot make your mortgage payments.
What Is Foreclosure?
Sometimes, you may face difficulties making complete and timely mortgage payments. Factors such as reduced wages, job loss, unexpected disability or illness, and dealing with a divorce can all impact your ability to keep up with your mortgage. If you fail to make payments for a while, your mortgage will fall into default, and you’ll lose your rights to the home. This is referred to as foreclosure. Since foreclosure isn’t in the best interest of either the lender or the borrower, it’s essential to share the challenges you’re facing with your lender and try to resolve the issue as soon as you know you might miss a payment.
How Does Mortgage Foreclosure Work?
When navigating a foreclosure process in Canada, your available options will vary depending on your location. While you may not have the freedom to choose among them, it’s beneficial to familiarize yourself with these options. Doing so will help you understand what lies ahead should you encounter a foreclosure situation.
Filing Bankruptcy
You’ve probably come across the term “filing for bankruptcy” before, but you might not know what it involves and how it impacts your future. It’s not a simple process, but it could be the right move, depending on your situation. When you file for bankruptcy, your debts are wiped out. This helps you manage your finances better and allows you to catch up on missed mortgage payments. However, you might have to sell your home if you still can’t afford these payments even after clearing other debts. If the sale doesn’t cover all that you owe, the remaining amount can be included in the bankruptcy. This means you can leave without worrying about more financial troubles.
Power Of Sale
In Ontario, Labrador, New Brunswick, Prince Edward Island, and Newfoundland, lenders often opt for the power of sale as their initial foreclosure method. It’s Canada’s most widespread foreclosure process and is especially common in Ontario. The power of sale involves less legal hassle and more cooperation. While it provides an opportunity to retain your home when facing foreclosure, it can come with significant costs.
If you miss your mortgage payment for more than 15 days, your lender can send you a notice called “notice of sale” or “notice of sale under mortgage.” This is the first step in a process called power of sale. If you get one of these notices, the first thing to do is contact your lender right away. Try to talk with them and see if you can pay what you owe before the process starts, which is usually within 35 days. If you manage to pay on time, you can keep your home and move forward, hopefully with a better plan for paying on time in the future.
But if you can’t catch up with payments in the given time, your lender will send an eviction notice and can sell your home to get back the money you owe. If there’s any money left after selling your home, it goes back to you. But if the sale doesn’t bring in enough money to cover what you owe, the lender can take legal action to get the remaining balance from you.
Judicial Foreclosure
This method, known as judicial foreclosure, heavily relies on the court system. As a consequence, it often takes much longer than the power of sale process, typically lasting between 6 and 12 months. It’s the preferred approach in Nova Scotia, Quebec, Saskatchewan, Manitoba, Alberta, and British Columbia.
In a judicial foreclosure, the lender initiates the process by filing a statement of claim with the court, essentially starting a lawsuit. This document is then served to the homeowner, who is given a specific timeframe to respond. If no resolution is reached, the property is transferred to the lender and can be sold under court supervision.
Unlike in power of sale, once the outstanding debt is repaid, the borrower forfeits any rights to potential capital gains from the sale of the home.
What You Should Do If You've Fallen Behind on Your Mortgage?
If you’re concerned about making timely payments or anticipate a cashflow problem in the near future, there are several steps you can take to alleviate the situation:
- Finding A New Lender
If your lender isn’t willing to negotiate to assist you, it might be worth exploring the option of transferring your mortgage to another institution. Learn about the steps involved in this process and explore your alternatives thoroughly to ensure you’re making an informed decision. Compare similar options and consider any extra fees that may arise as a result of your choice.
- Payment Deferral
During the pandemic, numerous individuals opted for this path when faced with a cash flow crunch and unfavorable financial circumstances. However, mortgage lenders have been providing short-term deferrals or extensions in exceptional situations for many years. If you’re suddenly concerned about making your payments on time, it’s crucial to discuss the option of temporarily pausing your payments with your lender.
- Renegotiation Of Your Mortgage
Depending on the amortization period you’ve selected for your mortgage, your lender might be open to extending it and adjusting your loan terms accordingly. By elongating the mortgage duration, your monthly payments can decrease, offering a straightforward solution to help you stay on track without resorting to drastic measures.
- Selling Your Home
If you believe that selling your home is likely to generate more cash than your outstanding debt to the bank, it might be a smart move to sell it before the bank begins foreclosure proceedings. By doing so, any surplus money after settling your debt would go directly to you rather than someone else.
Consumer Proposal
If your difficulty paying mortgage installments is primarily due to difficulties managing other debts, it may be worth considering filing for bankruptcy (or a consumer proposal) before rushing into foreclosure. This route can help you gain better control over your finances overall, potentially making homeownership much more manageable in the long run.
Facing foreclosure can be daunting, particularly when you’re unaware of your options and the process involved. Being well-informed beforehand lets you make the most suitable decision for your circumstances. It’s crucial to stay current with your payments, monitor your budget closely, and seek assistance promptly if financial difficulties arise. Curious about your choices or require professional guidance? The team at Rocket Mortgage is here to assist you!