Understanding Foreclosure in Canada
Foreclosure is bad news for both the property owner and the lender. The property owner, of course, faces the loss of a home into which he has likely poured a ton of money, but the lender also has to go to the legal hassle and expenditure of taking the home back, while waiting for the process to run its course. Sometimes this is especially inconvenient as the former owner has not had the money to maintain the house properly or has taken out his anger about the foreclosure on the interior of the home.
Canadian Foreclosure Process Explained
If you just miss one mortgage payment, you aren’t going to go into foreclosure automatically. Even if you haven’t contacted the bank at all, foreclosure won’t likely begin until you’ve missed two or maybe even three payments. If you haven’t missed any payments yet or have just missed one, the best bet is to contact your lender and explain your situation. Because the lender would rather take your money with a slight delay than go through the foreclosure hassle, the lender is likely to work with you. However, if you don’t ever contact the bank, you can expect the foreclosure process to begin with a letter of notice from your bank after that second or third missed mortgage payment.
What happens when the bank foreclosure on your house in Canada
If you live in BC or Alberta, the judicial sale process is how foreclosure takes place. If you live in Ontario, the lender can obtain a power of sale that actually makes the process move more quickly. This article details how the process (which varies by province) affects delinquent property owners in these three provinces.
The BC Supreme Court controls each step of the foreclosure process in the province. If you don’t pay your mortgage, the lender will likely call you or send you a letter. This is the bank’s attempt to allow you to make a good-faith effort to catch up on the loan. After a couple of months have gone by, though, you’ll get a letter from the bank detailing the arrearage that you have run up so far.
The letter gives you a date by which to pay the arrearage in full before foreclosure proceedings will begin. In many cases, if you call the bank and explain the situation, the representative may allow you to break that arrearage down into smaller payments, but communication on your part is vital at this point if you don’t think you’ll have the full amount in arrears by that deadline.
If you ignore the letter — or if you just can’t come up with the money and the bank won’t work with you on spreading that amount out — the lender will hire a lawyer. You’ll get a letter from that lawyer asking you to either pay that arrears amount or the full amount due on the mortgage, depending on what the bank’s preference is. You’ll see a deadline in that letter, after which the court proceeding will begin.
If you fail to meet this deadline, the lawyer will file a foreclosure petition. You will receive a copy through a process server, as will all the other interested parties (other mortgage signers, any tenants, as well as any other lien holders). You can file a response at this time. The hearings begin about a month later. At this point, the judge provides the lender with an order nisi, which gives you some time to redeem the loan by paying the total amount owed as well as costs, interest and taxes. This period generally gives you six months to take care of this, but the lender may request a shorter period. If you don’t redeem it during that time frame, the lender can either get an Absolute Order of Foreclosure or ask to have the court list the property for sale. In the case of an Absolute Order, the lender becomes the new owner, and everyone else is kicked off the title. If the court lists the property for sale, once the property is sold, if there are still arrears, the lender can go after the borrower for a deficiency judgement.
In Alberta, the process is very similar to that in BC. However, the one significant difference is that if the court lists the property for sale in Alberta, the court decides who the new buyer will be and the price for which the property will sell. This takes the power out of the lender’s and the borrower’s hands. However, just as in BC, if the sale price is less than what the borrower still owed on the property, the lender can still go after the borrower for the difference.
In Saskatchewan, the process that lenders use to initiate and execute foreclosure has one of the shorter time frames within Canada. Laws vary by province, but if you live in Saskatchewan, once the bank delivers notice, things can move quickly. See our article on the foreclosure process in Sask for more details.
There was a time when any desire to move toward a foreclosure proceeding required approval in front of a judge. However, unless there is farm land involved (in which case a leave order is necessary) or the land has been registered under the provisions of The Registry Act, or some other infrequent exceptions, the courts don’t have to get involved in foreclosures or mortgage sales in Manitoba. More on that in our full article.
In about 99 percent of cases, lenders can use the Power of Sale method to dispense of properties that have delinquent mortgages. There are two types: statutory Power of Sale and contractual Power of Sale. If the lender uses the Ontario Mortgages Act to pursue a Power of Sale, it’s considered statutory. If the mortgage contract has conditions permitting the lender to sell the property that the borrower is using as collateral without using the court system to resolve the issue, then it’s considered a contractual Power of Sale. It is quite rare for a mortgage in Ontario not to have a Power of Sale provision in the paperwork. In short, the lender sells the property, recoups the value of the balance of the mortgage and any other costs, and then returns any proceeds remaining to the borrower.
The process can begin as soon as the borrower misses just one mortgage payment. Again, though, this is an option that lenders do not want to pursue unless they have to, so if you feel that you’re at risk of missing a payment, proactive communication is your best bet. No sooner than 15 days after that missed payment, the lender may give you a Notice of Sale. The lender may act without notifying the borrower, but only with permission from a court. This only happens when the lender diligently tries to reach the borrower and cannot, such as in the case of an abandoned property.
You as the borrower would have a time period to redeem the property — typically 35 days to opt to bring the mortgage into good standing. However, if the mortgage has expired without renewal, the borrower has to pay the whole principal balance of the mortgage as well as any other costs. During the repayment period, the lender cannot take any other action. If the period goes without payment, then the lender files a Statement of Claim and Possession and takes over the property unless the borrower files a Statement of Defence within 20 days. After that, eviction and sale take place.
If you have 30% equity remaining in your home, you may still qualify for a mortgage renewal with one of the private lenders within our network.