Understanding Foreclosure in Canada: Seven Essential Facts
Foreclosure is a word that may seem daunting, especially if you’ve heard someone’s foreclosure experience or your mortgage provider has threatened it. This article aims to simplify this complicated term and provide insight into your available options. It will answer critical questions about foreclosure in Canada, such as what it implies, how it functions, and its potential implications.
Defining Foreclosure
Foreclosure is a legal procedure that allows the mortgage holder to seize a property when the owner defaults on the loan. The mortgage holder is the entity to which you make your mortgage payments.
Let’s break down some terms:
- Foreclosure: A legal process enabling a mortgage holder to claim a property after the owner falls behind on the loan.
- The Mortgage Holder: The organization to which you pay your mortgage.
- Default: The failure to meet the mortgage’s terms, including missing payments, not obtaining appropriate insurance, or not paying your property taxes.
Common Foreclosure Scenario
The most frequent foreclosure scenario occurs when the client misses payments, prompting the mortgage holder (usually a bank) to foreclose on the property to recover their owed amount. If you’re in this predicament, you may wonder about the ensuing process. What choices do you have during a foreclosure? Do you lose everything? Do you need to go to court? If your house is foreclosed, do you still owe money? How does foreclosure affect your credit score and for how long?
Let’s delve into the answers to these pertinent questions:
Options When Foreclosure Procedures Commence
- Do Nothing: This will lead to the bank taking legal action and you losing the property. After the bank sells it, you’re entitled to any equity remaining in the property, although there will be legal and selling costs to cover. The property may sell below market price, and if you had an insured mortgage, you can be sued for any remaining balance.
- Negotiate with the Lender: This typically involves catching up on missed payments or taking time to secure a mortgage’s refinancing through a trusted mortgage professional.
- Sell the Property Independently: This needs to occur before the bank forecloses and is a bit of a race against time.
- Fight in Court: This approach will likely require a lawyer (an extra expense) and can take a toll on your mental well-being. There are no guarantees when it comes to court battles.
Declare Bankruptcy to Avoid Foreclosure
An insolvency proceeding will not halt the bank’s ongoing foreclosure process. If you want to keep your house, you usually need to catch up on payments. An insolvency proceeding doesn’t stop foreclosure, but it protects you from any fallout from the deficiencies.
Assistance from a Licensed Insolvency Trustee
One unique aspect of 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 that forces creditors into a settlement.
When to Contact a Licensed Insolvency Trustee
You can file at any time to secure the stay of proceedings and help you move forward. It’s best to contact a Licensed Insolvency Trustee immediately if negotiations with your mortgage lender fail.
Foreclosure on a Rental Property
If the property in question is a rental property with tenants, the landlord is not required to inform the tenant about the foreclosure.
Owing Money After Foreclosure
There was a time when mortgages weren’t reported to credit bureaus, but that is no longer the case. Now that mortgages are being reported, foreclosure will likely affect your credit score negatively for several years.
Foreclosure and Your Credit Score
Most Canadians who have undergone foreclosure usually have to wait between 7 to 10 years before their credit scores no longer reflect a foreclosure or judgment resulting from foreclosure.
Conclusion
Facing a foreclosure is one of the most stressful situations. However, understanding the process and knowing your options can help you make informed decisions. Whether you’re a homeowner or a tenant, it’s essential to seek professional advice before you receive a foreclosure notice.
