Whether you are a lender or a borrower, if you are involved with a mortgage that is arrears, you should know the foreclosure process. Foreclosure is the legal steps that a lender takes to recover arrears and principal on mortgage loan that is in default.
What is a Default that Starts the Foreclosure Process?
The most common default under a mortgage is the non-payment of regular mortgage payments. Legally, the foreclosure process can be started after only one missed payment. Other types of default include, allowing damage to the property, failing to make tax payments, failing to insure the property, failing to make condo fee payments, etc. Call our team to find out if a particular action or inaction constitutes a default under your specific mortgage.
Who Pays for the Cost of Foreclosure?
All costs are paid by a borrower in a foreclosure action. As part of the foreclosure process, costs can include (but are not limited to) lawyers, process servers, appraisers, realtors, property managers, repairs, etc. If there are any costs incurred, it is added to what the borrower owes. This is important as a lender (or insurer) can pursue a deficiency judgment in certain circumstances. Two examples are commercial borrowers and CMHC or other insured mortgages. This means that the borrower can seek payments from the borrower’s assets, wages, etc for any amount owing after the sale is finalized.
Typical Steps In the Alberta Foreclosure Process
Below is the step in the foreclosure process. Initial contact
Lenders will usually initiate communication on a first missed payment. Some lenders will call while others will mail a letter notifying you of the missed payment. If the missed payment can immediately be paid, this will typically end the foreclosure process. Borrowers should not ignore this communication. Some mortgages have provisions for a single missed payment if there is a situational issue.
In the foreclosure process a demand letter is usually sent after the second missed payment. This letter can be sent by the lender directly, a collections company or a lawyer. In all instances this letter will state that if arrears are not paid up, a foreclosure will be commenced against the land owner.
Filing of a foreclosure claim
In Alberta, foreclosures are started by way of a statement of claim. The claim is filed in the Court of Queen’s Bench. Once this stage of the foreclosure process is started, a borrower will be liable for more significant costs as most lawyers provide for a borrower to pay all costs associated with the foreclosure process. The lawyer starting the action will the file a notice on the title to the property. This notice will let other lenders secured on title know that a foreclosure action has been started.
Borrowers Potential Actions in the Face of Foreclosure
These are the typical borrowers options.
Repay the arrears
In Alberta, a borrower in arrears maintains a right of redemption. Up until the final order is granted by the court, a borrower can end the foreclosure process by paying up the arrears or, in some cases, making payment arrangements to pay up the arrears.
Statement of defense
There are very few defenses to foreclosure. This option is not often used as it is expensive and unless there is an error in amounts owed or paid, there is no defense to non-payment of a mortgage. If the amount of the appraised value if very low, this is another time when a borrower may file a defense.
Demand of notice
A demand of notice is a legal declaration that a borrower wants to be kept up to date in the foreclosure process. If a borrower is trying to sell the property themselves or save money to pay arrears, this notice requires the lender to go through all the foreclosure process steps and allows a borrower to not be surprised as to then the final foreclosure will occur.
Unfortunately, this is a frequent choice borrowers make. This allows a lender to note the borrower in default. This will happen after the notice period has passed. The amount of time a borrower has to respond to the statement of claim will be clearly indicated on the statement of claim. Effectively, this allows a lender to jump to the end of the foreclosure process.
A quit claim is where the borrower agrees to give title to the lender. A borrower is highly recommended to talk to a lawyer if they are considering a quit claim as they may lose rights and it may have continuing financial repercussions.
Consenting to the foreclosure
This is another situation where a borrower should talk to a lawyer about the legal consequences of this action. It may allow a person to stay in their home longer; however it can have serious repercussions.
This is the time that the court allows a borrower to pay back the arrears and bring the mortgage current. The time allowed but the courts will vary. There are many factors that will determine how long a borrower can stay in their home (or commercial property) for the redemption period. The single biggest factor is the amount of equity in the property. This time can often be negotiated so call our foreclosure team today for help either speeding up or extending the redemption period. On average the redemption period is 3-6 months.
Sale ordered by the court
This is the step in the foreclosure process where a home is put on the market for sale. Most often it is listed, by the court, with a real estate agent. The agent’s fees are paid by the borrower. All offers are presented to the judge. It is the judge whom decides if an offer is fair and if it should be accepted. The sale proceeds are used to pay back all debt(s), in priority order, on title. If there are net funds remaining, they are payable to the borrower.
Order for foreclosure
This is where the property is not sold but is transferred to the lender in satisfaction of the debt. It is a different process than a judicial sale. The foreclosure order may lead to a deficiency judgment.