Five Things to Know if You’re Facing Foreclosure
How do Foreclosures Work in Canada?
Foreclosure is a legal process for a mortgage holder to take possession of a property after the owner defaults on the loan. Typically this is done when a certain number of payments is missed, but there can be other “acts of default” which would be specified in the mortgage agreement, these could be things like not getting proper insurance or not paying your property taxes. The most common foreclosure scenario we see at Bromwich+Smith is when the client misses payments and the bank then sues them to try to sell the property and get their money back.
What are my options when my mortgage lender starts Foreclosure procedures?
- Do nothing – the bank will take court action and you will lose the property. You will be entitled to any equity in the property after the bank sells it, however, the legal and selling costs will erode the equity, not to mention the property will likely sell for below market in a “forced sale” situation. Perhaps consider lifestyle changes, can you reduce other expenses to make your mortgage payments? Can you increase income to help with other bills?
- Try to work out a solution with the lender – this would typically involve getting caught up on missed payments or taking time to secure refinancing of the mortgage through a trusted mortgage professional. You may want to reach out to other lenders like your credit card lenders and see if you can negotiate lower payments, lower interest rates or to freeze your payments for a few months while you catch up on your mortgage payments.
- Sell the property on your own – this would have to happen before the bank forecloses and is a bit of a race against the bank. It an be a tough pill to swallow, but maybe getting rid of the so called asset is really best for you and your family at this time. You can buy a home again in the future when you’re stronger financial footing.
- Go to court to try to fight the foreclosure – may need a lawyer which costs money of course
Can I Declare Bankruptcy to get out of Foreclosure?
An insolvency proceeding will not stop the bank from continuing the foreclosure process. Generally, if you want to keep your house you will need to get caught up on payments. Typically, after the bank sells the property there is what’s called a deficiency on the property. This would be the difference between the amount the bank sells the property for in a forced sale and the mortgage balance, interest and fees.
The rules are different province to province, but in Alberta if the mortgage is a conventional mortgage (20% or greater original down payment) the bank is unable to pursue the client for any shortfalls or deficiencies. We don’t see this very often, most of the time the clients have high-ratio mortgages (less than 20% down, requiring Canada Mortgage and Housing Corp or CMHC insurance) or home equity line of credits (HELOCS) in which case the bank could pursue you for a shortfall.
So, an insolvency proceeding won’t stop the foreclosure, but it will protect you from any fallout from the foreclosure or deficiencies. CMHC insurance is mortgage insurance that protects the bank against mortgage shortfalls. Basically, when a bank forecloses and there is a shortfall CMHC steps in to make sure the bank gets their money back. CMHC pays out the bank and then has what is called a “subrogated” claim against the client. This means CMHC will take over from the bank and sue the client to try to collect on the shortfall.
How can a Licensed Insolvency Trustee Help?
One thing that is very unique to the Bankruptcy and Insolvency Act is the legal stay of proceedings. Only a formal restructuring program, administered by a Licensed Insolvency Trustee, offers a legally binding stay of proceedings which in fact, forces the creditors into settlement. Once someone has signed into their consumer proposal or bankruptcy, all creditor actions, including phone calls, demand letters, judgements and threats must stop -legally. This is the highest and most important form of protection and is only available through a bankruptcy or consumer proposal in Canada. The Stay of Proceedings is one of the biggest advantages of filing into a consumer proposal or bankruptcy in Canada, offering protection for the honest but unfortunate debtor from their creditors.
The stay of proceedings from a bankruptcy or proposal stops CMHC from suing you for the shortfall, and this is the benefit to you. By filing, CMHC would not be able to pursue you for any shortfalls on the property.
When should I contact a Licensed Insolvency Trustee?
You do not need to wait until foreclosure has commenced or completed, in order to file into a Consumer Proposal or Bankruptcy. We can file at any point in the process to secure the stay of proceedings and help you move forward. It’s best to work out a solution with your mortgage lender well in advance of them issuing a notice to foreclose, and, if that does not go well contact a Licensed Insolvency Trustee immediately.
What if it’s my rental property?
If the property in question is a rental property with tenants living in it the landlord is not required to tell the tenant about the foreclosure. When the bank takes possession of the property, they will likely get a court order forcing the tenant to vacate. The notice will typically give the tenants 30 days. Regardless of which type of property it is; owner occupied or rental, you want to reach out for help and professional advice BEFORE receiving notice of foreclosure.
To learn more about foreclosures, check out this CTV segment with our Vice President Jasmine Marra as she discusses things to know if you think you may be late on a mortgage payment.
Licenced Insolvency Trustees, Bromwich+Smith have debt relief specialists available to offer debt advice and debt restructuring entirely from the comfort of your own home. Now offering video appointments with clients, Bromwich+Smith’s Debt Relief Specialists are available for initial free, no obligation, confidential consultation by phone at 1-855-884-9243 or request a call back at contact us page.