Foreclosure is the legal process through which a mortgagee (i.e. a lender, usually a bank) attempts to recover the balance of a mortgage which has gone into default. Generally, this takes place by taking ownership of the property in question of forcing the sale of that property.
What is a Mortgage Default?
Default occurs when a borrower does not fulfill the specific promises they made under the mortgage.
The most common form of mortgage default is failure to make a scheduled payment. However, other actions can also constitute default, including:
- Allowing significant damage to occur to a property;
- Failing to insure a property;
- Failing to pay property taxes or failing to make other payments, such as condo fees.
Each mortgage agreement will outline terms, conditions, and expectations, including what constitutes a default.
When Can a Lender Initiate Foreclosure?
In most cases, a lender can look to foreclosure as soon as even one mortgage payment is missed. However, foreclosure can be a lengthy process and a lender may not necessarily pursue foreclosure as a first option where there is a default.
In many cases of default, a lender will first attempt to contact the borrower to remind them of their obligations under the mortgage and to demand payment. In some cases, this may lead to discussions with a borrower and attempt to reach an alternative payment plan (if possible) in lieu of pursuing foreclosure.
If these discussions are not effective, or the borrower is unable to commit to making payments, the lender and borrower can proceed with a Quit Claim, in which title is transferred from the borrower to the lender and the foreclosure process can be avoided.
What is the Foreclosure Process?
In general, the foreclosure process proceeds as follows:
Step One: Statement of Claim is Issued
- The lender will file a statement of claim, setting out the facts on which the claim is based
Step Two: Time to Respond
- Once a statement of claim is filed, the borrower has 20 days in which to file and serve a Statement of Defence or Demand for Notice.
- There are no defences to non-payment of a mortgage, but the borrower may be able to file a defence if they believe the appraised value of the property is too low.
- A demand for notice is a legal declaration indicating that a borrower wishes to be kept up to date about the foreclosure process.
- If no action is taken, the lender can note the borrower in default.
Step Three: Affidavit of Value and Affidavit of Default Are Filed
- The lender will then file an Affidavit of Value, which includes an appraisal of the fair market value of the property, and an Affidavit of Default, which includes the amount that remains owing on the mortgage as well as the amount in default.
- Once this is done, the lender can pursue various remedies including sale of the property.
Step Four: Redemption Order is Granted
- Once the two affidavits are filed by the lender, the court will generally grant a Redemption Order.
- The order grants the borrower a specified period of time within which the outstanding mortgage payments must be made and further provides that if these payments are not made within this period of time the property will be offered for sale.
- The redemption period will vary depending on a number of factors including equity in the property.
- The redemption period can often be extended with the help of a lawyer.
Step Five: The Property is Listed for Sale
- If the borrower is unable to make the payments required within the time period indicated in the Redemption Order, the property will be listed for sale.
- The costs of listing the property, including the cost of a real estate agent, are paid by the borrower.
- If there is a valid offer made, the court must approve and accept the offer, and make an order permitting the property to be sold.
- If there are no valid offers made, the lender can apply to become the legal owner of the property.
- The proceeds of the sale are used to pay all debts owing. If there are any funds remaining once debts are settled, those funds go to the borrower.
- In some cases, such as where the court believes there is no way a borrower will be able to fix the default and pay back what is owing/ redeem the mortgage, a court will make an Order for Foreclosure and the lender will become the owner of the property. This circumvents the need for a sale.
Step Six: Possession of the Property
- The new owner (a purchaser, or the bank, if no valid offers were made) will usually be entitled to possession of the property within 30 days.
- All occupants of the property must move out/leave during this time.
- If there is a tenant living on the property, he/she will be served with a court order requiring them to move within this period of time.
What Can Borrowers Do When Faced with Foreclosure?
If you have been unable to keep up with mortgage payments or have otherwise defaulted on your mortgage you may think that you have limited options available to protect yourself and your home. The prospect of foreclosure can be extremely emotional and very intimidating. However, there are various options available to borrowers and various means by which to bring your mortgage back into good standing without necessarily losing your home. Don’t let the fear of foreclosure prevent you from working towards a solution to your problem.
For more than 25 years, the experienced litigation lawyers at DBH Law in Calgary have advised clients on a wide range of mortgage and foreclosure issues. Our goal is to always resolve mortgage disputes and foreclosure issues quickly and efficiently and to bring them to the most satisfactory end for our clients. To learn more about how we can help contact us online or by phone at 403.252.9937.