What You Need to Know about Foreclosure
One of the scariest experiences that any homeowner can endure is the possibility of foreclosure. If you don’t pay your credit card bills, the lender won’t let you use the card anymore. While your credit score will suffer, it’s nothing like being kicked out of your own home. However, even if you’ve started getting letters from your mortgage lender about foreclosure, you may still have some time to save your house – as long as you understand the basics and the steps to escape it. Let’s take a look at what foreclosure is and how it can affect you.
What exactly IS foreclosure?
If you take out a mortgage but stop making your payments, foreclosure is the legal action that the lender is allowed to take. The lender goes to court to get permission to take away your house and/or sell it in order to recoup the amount of the loan.
Then just what is a mortgage?
Most people don’t have enough cash on hand to buy a house, or to buy a commercial building or industrial facility. So they approach a lender and take out a contract to pay a loan back for the purchase of the property over time. This contract is called a mortgage. This basically involves a loan that allows you to buy the house now, and the mortgage is the guarantee, registered with the Land Title Office. When you pay the mortgage off, you own the house free and clear.
Will one missed payment lead to foreclosure?
It’s extremely unlikely that missing just one payment will lead to the loss of your home. Foreclosure is an expensive, lengthy process that lenders don’t want to go through unless they have to. Generally, a lender won’t even start the proceeding until two or three months have gone by without a payment. Now you may get a letter notifying you of the late payment and demanding that you send it in, after you’ve missed one. The best thing to do is to get in touch with the lender as soon as you know that you will miss a payment. The more proactive you are, the more flexible the lender is likely to be.
A lot of people go through short-term difficulties that cause them to miss a payment. They might have an operation to pay for, or they might have a layoff that burns through a lot of their savings and leads to a missed payment. Some lenders may allow you to make smaller payments for a time, adding the arrears back to the balance of the mortgage. The majority of lenders would rather work with you than foreclose on you – because it means they are getting money each month and not having to pay lawyers and go through the courts.
Canadian law stands to help consumers who have a decent chance at catching back up with their mortgages and are making a good faith effort to clean up their financial situation. Foreclosure, where you would lose your home as well as any of the equity you had built up in it, only happens in the very worst cases. (Equity is the amount of the principal you have paid off in your mortgage over time).
How does the foreclosure process begin?
If your home is located in a place with a Supreme Court Registry, that is where the legal proceedings would begin. You get a “petition for foreclosure,” a legal document indicating that the lender has started a court action to recover the money they lent you, using the help of the court.
What’s the best response when you receive a petition for foreclosure?
Talk to a lawyer as soon as possible. You have to file a response within 21 days if you want to be included in the court proceedings, and that response has to include affidavits to support your side in the case – in other words, explaining why the lender should not be able to foreclose. You have to file the response at the same court that appears on the petition, and you also have to send two copies of that response to the lender. After this, you have the right to notification for all steps in the process. You will soon receive a Notice of Hearing, which indicates the time and date of the appearance before the judge when the lender will ask permission to foreclose.
What takes place at this hearing?
The court renders an “order nisi” which generally will give you the time to redeem the mortgage (by paying the total amount owed plus taxes, interest and costs). This time is the “redemption period” and usually lasts six months. The lender could ask for a shorter period of time.
You should definitely attend the hearing, because you want to ask the judge for as much as time as he will grant you so you can round up the money to redeem the mortgage or to sell the house. You can ask for an extension, but if you do, the court will want to see that you’ve made an effort to pay some of the arrange and the chances that you could pay the balance or at least sell the house yourself (or with a realtor). A lawyer can help you with advice and options, such as refinancing the note through a different lender.
Once the redemption period is over, the court can provide the lender with the final foreclosure order. The lender can also request the right to list the house for sale through their own realtor. If other creditors also have liens against the property, they can also request the right to sell the house. If the court grants any creditor this permission, they have conduct of sale, which means that they control the whole process. Always ask for exclusive conduct of sale, because as long as you have this, no one else can list your house. If the court refuses, ask for joint conduct, which gives you a limited amount of control.
What can you do during the redemption period?
First, pay the note. Start paying as much as you can, and try to arrange funds from another lender, such as a private lender, or a relative. This will allow you to at least satisfy the mortgage and stay in your house. Private lenders will charge higher interest but often allow you to make interest-only payments so that you can build up savings during the year or two of the loan, so you can make a bigger down payment and get your credit in order.
Another option is to try and sell the house. Be honest with your realtor about what is going on. If you sell the house, you can use those funds to satisfy the mortgage. If the sale proceeds don’t quite satisfy the balance, you’ll have to make up the difference yourself, unless the lender has approved a “short sale” (a sale for less than the balance owed). Even in a short sale, the lender can come after you for the difference.
What happens after the redemption period and the last order?
If the lender sells the house after receiving conduct of sale, they can still come after you for the difference. If they receive an order absolute, you have to move out – and the lender can sell the house, but as they own it outright now, they can’t come after you if they don’t get enough.
Summing things up
A mortgage is a contract that you sign to repay a loan that you take out to buy a property. If you don’t make your payments on time, the lender can start foreclosure proceedings. Don’t let things get this far! Talk to your lender if you know that you’re going to miss a payment. Communication is crucial.