If you are a borrower or lender who is dealing with a mortgage that is in arrears, it is important to understand the foreclosure process. When a lender takes legal steps to recover the principal and arrears on a mortgage loan that has gone unpaid, it is referred to as foreclosure.
What Starts the Foreclosure Process?
In most cases, the failure to pay regular mortgage payments is the reason for default. By law, a foreclosure can begin after only one payment has been missed. Additional examples of default include:
Failure to have the property insured,
Allowing the property to become damaged,
Failure to pay condo association fees,
Failure to pay tax obligations,
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If you are unsure whether or not a specific action or inaction is considered a default under your mortgage agreement, please call our team.
Who is Responsible for the Cost of Foreclosure?
In the case of a foreclosure, the borrower is responsible for all costs. These costs many include appraisers, lawyers, process services, property managers, realtors, and repairmen. However, it is not limited to these things. If additional costs are incurred, this amount is added to what the borrowers owe. This is critical because a lender or insurer can pursue a deficiency judgment in specific situations. For example, commercial buyers and CMHC or other insured mortgages. As result, the lender can request payments from the borrower’s wages, assets, and more for the amount owed after the property’s sale has been completed.
A Look at the Typical Alberta Foreclosure Process
Below is the step in the foreclosure process.
Foreclosure begins with the initial contact. At this time, a lender will touch base after the first payment is missed. Some may mail a letter, while others may call. If the missed payment can be made immediately, the foreclosure process usually ends.
Borrowers should never ignore this communication. Some mortgages have a clause for just one missed payment, in the event of a situational issue. However, missed payments (NSF) may have a financial costs that ranges from $50 to $100.
After the second payment is missed, a demand letter is usually sent. This letter may be sent by the lender, a lawyer, or a collections company. Regardless of who sends the letter, it will state that if arrears are not paid, the foreclosure process will be started against the property owner.
- Filing a Foreclosure Claim
A statement of claim filed in the Court of Queen’s Bench starts the process of foreclosure in Alberta. Once this stage has started, the borrower becomes liable for substantially higher costs because most lawyers request that the borrower be made to pay all costs associated with the process of foreclosure. The lawyer begins the action by filing a notice on the title to the property. This notice informs other lenders secured on the title that a foreclosure action has been started.
- What Can a Borrower Do When Faced With Foreclosure?
A borrower has several options. The most common include:
Borrowers in Alberta retain a right of redemption. This means that until the final order has been granted by the courts, a borrower can stop the foreclosure by paying off the arrears, or, possibly, making arrangements to pay off the arrears.
This is rarely used, because it is an expensive option and there are limited defenses to a foreclosure. Unless there is an error in the amounts owed or paid, there is simply no defense. However, if the appraised value is significantly low, the borrower also has the option of filling a defense.
This is a frequent choice for borrowers. This allows a lender to note the borrower in default after the notice period has passed. The amount of time a borrower has to respond to the statement of claim will be clearly noted on the statement of claim. Essentially, this gives the lender the ability to jump directly to final stages of the foreclosure process.
This is a legal declaration that the borrower wants to be notified of everything during the foreclosure process, so they are up to date on what is going on. If the borrower is making attempts to sell the property on their own or save the money needed to pay the arrears, this notice requires the lender to complete the steps of foreclosure, while ensuring that the borrower is not surprised at the time of the final foreclosure.
- Consenting to foreclosure
Before taking this course of action, a borrower should discuss the implications and its legal consequences with a lawyer. While it may allow a family to stay in their home slightly longer, there can be serious consequences.
When agreeing to a quit claim, the borrower agrees to turn over the title to the lender. It is important to discuss this option with a lawyer before proceeding with it because the borrower can lose their rights and face ongoing financial repercussions.
- Sale ordered by the court
This step involves putting the property on the market for sale. In most cases, it is listed with a real estate agent of the court’s choosing. The borrower is responsible for paying the agent’s fees. All offers must be presented to the judge, who will determine if the offer is fair and should be accepted. All proceeds of the sale are used to pay back debts, as listed on the title, in priority order. In the event there are funds remaining after everything has been paid, they are paid to the borrower.
In this case, the court allows the borrower to pay back the arrears and bring the mortgage current. The time allowed varies and is determined by the court. There are several factors considered when determining how long a borrower will be allowed to stay in the residential or commercial property for the redemption period. However, the most important factor is the amount of equity in the property. Our foreclosure team often negotiates redemption periods, so please call use today for assistance speeding up or prolonging the redemption period. Typically, the redemption period is between 3 and 6 months.
In this case, the property is not sold, but is transferred to the lender to satisfy the debt. It is not the same as a judicial sale. A foreclosure order may result in a deficiency judgment.