If you are facing a possible foreclosure in Canada, you should try to understand the legal process. You should also consult with a lawyer and a mortgage broker as soon as possible. You must act as quickly as possible to prevent and stop a foreclosure.
What is a Foreclosure?
A foreclosure is a legal remedy used by a lender to try and recoup their financial investment in a property. A foreclosure means that the lender is taking ownership of your property. The lender will assume all debts, liability and any equity in the house. If your property has a large amount of equity, you should take immediate action to try and stop the foreclosure.
Foreclosure is most common in the provinces of British Columbia, Alberta, Manitoba, Saskatchewan, Quebec, and Nova Scotia. Power of Sale is the more common legal process used by lenders Ontario, New Brunswick, Prince Edward Island, and Newfoundland and Labrador. But foreclosures do also happen in Ontario, New Brunswick, Prince Edward Island, and Newfoundland and Labrador.
Each province in Canada has its legal procedure that lenders must follow to recoup an investment in a property. In general, all lenders must notify the property owner of the mortgage default and the potential foreclosure action. The property owner has certain rights to defend and stop the foreclosure action.
Let’s look at a foreclosure example in Ontario, and it’s process. Before a lender can start a foreclosure, there must be a default of at least one of the mortgage terms. The most common mortgage default is the failure to pay the mortgage on time. Other mortgage defaults could be not paying the property taxes or not having insurance on the property.
In Ontario, the lender must wait at least 15 days from the date of the default before they can start the legal action. On the 16th day, the lender can send out a Notice of Sale. The Notice of Sale will outline what the default is and how much money is required to correct the default.
The lender must wait at least 35-days before any further legal action can proceed. The 35-day time period is there to give the property owner time to arrange money to correct the default.
Once the 35-day time period has passed, the lender can send out a Statement of Claim. In Ontario, the Statement of Claim is sent to the Ontario Superior Court. The Statement of Claim should clearly state “FORECLOSURE” on this first page. The Statement of Claim will be sent to the owners of the property. The claim is usually sent by registered mail, regular mail or delivered directly.
In Ontario, it is crucial to note that the property owner has the option to go before the courts and ask that the foreclosure action be changed to a power of sale action. The change from foreclosure to power of sale means the property owner has the chance to retain the equity in the property.
Once you receive the Statement of Claim, you have time (usually 20 days) in which you can either file a Statement of Defense or a Demand for Notice. The former indicates that you want to dispute one or more of your lender’s claims against you – you should only file this if your lender’s Statement of Claim is incorrect. The latter indicates that you wish to be notified of further proceedings. Filing a Demand for Notice doesn’t mean you won’t get the chance to keep your home, it simply means that you’re aware that your mortgage is in default and you agree that your lender has legal right to begin the foreclosure proceedings. If you fail to file either of these statements, then you could be considered “in default” of the Statement of Claim.
How Can You Stop Foreclosure on Your Home?
The best way to stop foreclosure is, of course, to prevent it from happening in the first place. Before entering into any mortgage agreement, make sure you’ve budgeted appropriately, and have at least a few months’ worths of savings put away in case of an emergency, unexpected expense, or loss of income.
Once foreclosure proceedings have begun, you have a few options:
- Catching up on payments, known as bringing your mortgage into good standing
- Get a new mortgage to pay off the existing mortgage
- Selling your home
Make Payments and Bring Mortgage Back Into Good Standing
Most lenders allow time for the homeowner to make a payment to clear off all arrears and bring the mortgage back into good standing.
If you’re already struggling financially and your lender has opted to start foreclosure, it may be tough to raise the necessary funds to prevent foreclosure at this stage. A second mortgage or a home equity loan from an alternative lender may be an option. A second mortgage will help you make payments to appease your current lender. However, you’ll need to have a long term plan for keeping up with payments on these new debts.
Selling your Home before Foreclosure
The decision to sell your house before the lender takes it in a foreclosure can be difficult and complicated. Selling requires consideration of the financial and legal requirements for each particular situation. Consulting with a mortgage broker and lawyer is recommended before you decide to sell.
As long as the lender has not sold the house, the homeowner has the right to sell their property. If the sale of the home pays all outstanding debts and mortgages, the homeowner does not need approval from the lender to sell the property. If the selling price is below the amount of all outstanding obligations, the homeowner will need the permission and consent of the debt holder to sell the property. Selling a house below the amount owed is also called a short sale.
Let’s assume there is equity in your property, and you cannot get a mortgage, then selling is your best option. Selling and coming out with some money is much better than being evicted and receiving no payment.
Can a Lawyer Stop a Foreclosure?
A lawyer may not be able to stop foreclosure proceedings from starting. After all, you probably aren’t going to be speaking to a lawyer until notification that your lender intends to move forward with foreclosure proceedings.
That said, a lawyer may be able to help you avoid the more dire consequences of a foreclosure (such as losing your home) by working with the lender and their lawyer to devise an alternative. A lawyer with experience in foreclosure and mortgage law may be able to advise you on what your options are as far as mitigating losses and can help you gather the documentation required to plead your case in the courts.
The fact remains that foreclosure is a painful process for both lender and borrower, so if you’re in mortgage default or at risk of default, the first thing to do is tell your lender. If you’re in default due to a temporary hardship such as a layoff or a medical expense, you should notify your lender. Your lender will probably be more inclined to offer you a deferral or an alternative payment structure so you can get your mortgage back on track and avoid foreclosure.
Should I Stop the Foreclosure?
Many people want to know should I stop the foreclosure or let the lender take the property. The answer can be complicated but primarily depends upon how much equity remains. If there is no equity left in the property, then there is little point fighting the foreclosure. If there is a substantial amount of equity, the property owner should try to stop the foreclosure. As with all legal issues, we recommend that the property owner consults with a mortgage broker and a lawyer before making a decision.