For the homeowner, foreclosure is one of the most stressful experiences that you can go through. The largest investment you are ever likely to make is in your home, and the mortgage payment likely represents the largest chunk of your budget. If you find yourself behind a mortgage payment or two, even if you haven’t yet received a foreclosure notice, you’ll want to take a look at answers to these common questions about the process.
Answers to some of the most common FAQ surrounding Foreclosure and Foreclosure Prevention
It is possible, but not guaranteed. In some cases, you may just need to make up the missing mortgage payments and any late fees. Depending on how far the process has gone, though, you may have to pay the entire outstanding balance due, as well as fees associating with the foreclosure process to that point.
Technically, you only have to miss one before a lender can initiate foreclosure proceedings. Because the lender would usually rather have the money in hand, catching that payment up can keep matters from proceeding.
Initially, you will receive a letter from the bank indicating that you have defaulted on your loan. At that point, the letter will indicate what you must do to return the mortgage to good standing, whether that means making up back payments or paying the entire balance in full, with fees, with a deadline. If you do not meet the deadline in this letter, then the bank can begin the legal proceedings.
Foreclosure begins when you head to court for a hearing on the lender’s desire to be paid current or in full. After that, you have a time period when you can redeem the property by satisfying the entire balance due, along with associated fees, but if foreclosure proceeds without payment, the lender can potentially obtain title of the property, and the borrower must move out.
Again, this varies by lender. If you know that you are going to miss a mortgage payment because of a temporary setback, it is important to get in touch with the lender as soon as possible. Once you head to court, unless you can come up with the entire balance due, the process becomes very difficult to stop.
Again, foreclosure technically begins with a notice that you are in default of your mortgage. If you do not meet the terms of that notice, then the process will go through the court process. After the hearing, you have a set period of time during which you can redeem the property by paying the balance due. If you do not pay by the deadline, the lender may obtain ownership.
This varies by lender and court docket, but the entire process, from initial default to bank takeover, can take as long as a year depending on the equity. Less equity generally means a shorter time to repay.
This varies by lender. It would be uncommon for you to miss more than two mortgage payments without receiving a default notice.
If foreclosure goes all the way to seizure, then you receive notice of the date by which you must vacate the premises. If you do not vacate by that time, law enforcement will show up to take you and your belongings out of the property.
This depends on the type of process the bank chooses. If the bank sells the property for less than the balance due (including fees), then you can still end up with a balance due to the bank. If your mortgage is insured with a CMHC, Genworth or Canada Guaranty and the cover some costs due to shortfall, you may get sued by the insurer.
Foreclosure only affects properties used to secure the loan that went into default. If you own other properties not connected to that loan, you do not lose those properties. However, it may effect the other properties in the future. If the foreclosing lender was the lender on the foreclosed property and another owned property ,the lender may not renew due to the foreclosure.
There is no impact of foreclosure on income taxes if the property is your primary residence. If the foreclosure is on a rental, there may be tax implications. If the property is sold and you receive funds from the sale, capital gains would apply. Other tax implications may apply if the property is held corporately. You need to speak to your accountant as it relates to your specific situation.
In addition to losing your home, foreclosure also has a significant impact on your credit, making it extremely difficult to secure another mortgage and making the terms of other sorts of financing considerably more expensive in terms of insurance rates.
A foreclosure stays on your credit report for seven years after the date of your first missed payment.
If you have the money in hand and do not need financing, then you can buy a house right away. However, if you need financing, you would need to rely on a private lender (which can mean a down payment of 25% or greater) until the foreclosure comes off your credit report.
This is a clause in your mortgage contract giving the lender the right to sell the property should you default on the loan.
A mortgage company must provide notice of default before starting foreclosure proceedings?
No, but if there is a shortfall the lender may sue the borrower and/or the personal guarantors to recover any monies lost. Rules vary slightly depending on the province.
If you can redeem the property by paying the balance of the loan (plus fees) before the date due, then you can get the house out of foreclosure.
What to Do and NOT to Do during Foreclosure:
If you’ve just gotten a letter from your mortgage lender indicating that foreclosure proceedings are imminent, chances are you’ve been stressing out about your financial situation for some time now. For most people, the last bill that they let slide is their rent or mortgage payment, because they don’t want to end up out on the street. Once you get that letter, it’s likely that you’ve missed at least one payment, and perhaps two or maybe three. If you’ve done some research about mortgages, you know that the Web has many articles defining “foreclosure” and “power of sale” – but not much is out there telling you how to work your way out of your situation. After all, the banks would rather work with the existing homeowner in the vast majority of cases, because foreclosure is an expensive process for the banks – and once it begins, their revenue from the homeowner drops to zero. So here’s a basic guide on what to do once you fall behind on your mortgage – and what NOT to do.
Do…communicate with your lender
As soon as you realize you may have to miss a payment (or just make a partial payment) let your lender know. If you haven’t missed a payment yet, you have almost a 100% chance of this succeeding – remember, banks would rather work with you than foreclose on you, in almost every case. If you’ve already missed a payment or two and received a letter about foreclosure, make that call as soon as possible. Explain why you’ve missed the payments that you have, and your plan for catching back up. Even if you just need to “catch up” by moving your term end back 60 or 90 days and making your next payment on time, most banks will work with you. Most mortgage insurers have programs that help homeowners who have run into difficulty, and you may qualify for those as well.
Don’t…hope that the situation just goes away
Even if you ignore the letter, the bank will not forget about you or about your account. If the foreclosure ends up going through, it will stay on your credit for six years, which can keep you from getting any sort of loan from a traditional lender over that time period.
Do…reach out to a mortgage broker agent licensed in your province and experienced in private lending and foreclosure refinance solutions
What if the bank won’t work with you? You’re still not out of options. Amansad Financial is a broker agent licensed to handle these types of transactions. If you have sufficient equity, you might be able to refinance or take out a second mortgage. If you don’t have enough equity, but you want to remain in your home, we have a network of investors and private lenders who will work with you under IPR arrangements to give you a fresh start. In the rare event that we cannot find a solution for you, we suggest that you sell the house as quickly as you can and move.
Don’t…reach out to multiple traditional lender or broker agents
Most of these brokers aren’t used to working with borrowers in your situation – and if you have multiple brokers running your credit, that can have a detrimental effect on your credit. If a lender sees that you have a lot of inquiries on your credit history, that can cause problems as well.
Do…save as much money as you can
This advice is for those who have already entered the legal process. Once the Statement of Claim has come and gone, the foreclosure process will not end until all of the arrears on the note as well as any legal fees are paid in full – unless the property has been sold or an entirely new loan is in place. During this time, you should save any income that you would have used to make ongoing mortgage payments. You can put that money toward the total costs, pay for the appraisal with your new lender or pay for your move. No matter what you do…
Don’t…spend the saved money on nonessentials
After all you will need it for something crucial in the next few months.
Do…get ready for the fees
That’s right – closing costs, lender’s legal fees, brokerage fees, and so on. No matter how you come out of your foreclosure, those helping you are doing so as a professional service. Misfortune brings unexpected costs, often in significant amounts, and a foreclosure is no different. With that said, though…
Don’t…pay any fees up front
No lender, or broker or foreclosure refinancing specialist should ask for fees up front, except when it’s time to order an appraisal, secure documents related to a condo (when applicable) and test for water potability (on rural properties). If you are asked to pay anything else up front, move on to the next company.
Do…research the process (but don’t dawdle)
Look into how foreclosure and power of sale work in Canada. The more you know, the stronger your position will be when dealing with lending brokers, and with your lender. You can set up a Google alert that will send you an email when new articles appear online about the topic.
Don’t…be timid or afraid
Don’t sign any agreement with a brokerage until the representative has answered all of your questions. Before you sign anything binding, seek out ILA (independent legal advice). If you work with Amansad Financial, getting that sort of advice is mandatory to ensure that your arrangements represent the best outcome for you and your family.
How to save your home during a foreclosure
In short, no matter what stage of foreclosure you find yourself approaching, you need to do the right thing for yourself and your family. Our goal at Amansad Financial is to keep every customer in their home – but that doesn’t end up working for everyone, and if you’re in that situation, we will let you know up front. There are some brokers who will try to sell you an optimistic ending that is just unrealistic, but that’s not how we operate. Give us a call today!