How many economists and market analysts anticipated the Canadian real estate market would experience a crisis when the Bank of Canada (BoC) announced it would begin raising interest rates? Roughly two years later, the nation’s housing market has remained intact, although there have been pockets of weakness across the country. But the current housing landscape has been short of foreclosures, delinquencies, and price crashes.
According to the Canada Mortgage and Housing Corporation (CMHC), the mortgage delinquency rate has never topped 0.15 per cent since the central bank pulled the trigger on its first rate hike in the spring of 2022. This is a result of immense pandemic-era savings and a solid labour market.
In other words, homeowners have not been forced to foreclose on their residential properties or engage in a forced sale to cover the cost of their mortgage.
That said, it is still vital to be equipped with the knowledge of how the process works.
Reasons for Foreclosing
Unfortunately, there could be many reasons as to why Canadians might foreclose on their homes. It could be because of rocketing household debt that is drowning families. A loss of employment, the death of a loved one, and a cost-of-living crisis could mean individuals can no longer afford their houses, townhomes, or condos.
Deciding to purchase a home is one of the most significant financial decisions you will make. It is essential to do your research, talk to your real estate agent, and make plans to ensure you purchase a home that is within your price range. In the same way, it is important to understand what you need to know to make a financially responsible decision; it’s important to understand what can happen if something were to happen and you are no longer able to pay your mortgage, resulting in a foreclosure.
The Mortgage Foreclosure Process in Canada
Foreclosure is a term you may have heard before, but if you don’t fully understand what exactly it means, we can explain! A foreclosure is what happens when a homeowner fails to pay the mortgage on their home, forfeiting the rights to the property. Since a foreclosure is not in the best interest of both the borrower and the lender, the lender will often reach out to try and resolve the issue as soon as payments have been missed. If that happens and a resolution is not reached, the home will likely go into one of two common remedies in Canada: Power of Sale or Judicial Foreclosure.
Power of Sale
PREFERRED IN: Ontario, New Brunswick, Newfoundland & Labrador, and Prince Edward Island
With this option, the lender is required to provide the borrower with notice and 35 days to pay what is owed and get the schedule back on track. If this does not happen, the lender will now be able to sell the property without having to involve the courts. Once the homeowner has been evicted, the lender would arrange for the home to go to auction through a real estate agent.
The money from the sale of the home will cover all of the fees that are owed, and if there is a remaining balance, it will be returned to you. If all fees are not covered, the lender has the right to sue you for the remainder.
Judicial Foreclosure
PREFERRED IN: British Columbia, Alberta, Quebec, Manitoba, Saskatoon, and Nova Scotia
While the Power of Sale option limits the involvement of the courts, the Judicial Foreclosure ensures the courts are heavily involved. Because of this, it can sometimes be a much longer process.
At the beginning of this, a Certificate of Foreclosure is obtained by the lender, and the ownership of the property is transferred to them. Once this happens, the borrower has no right to any capital gains that may result from the sale of the property.
Will You Lose Your Home?
It is commonly believed that foreclosure will lead to the loss of your property. However, various factors need to be considered:
- Financial Situation: What do your personal finances look like? Do you have employment? How much debt do you possess? How behind are you on your mortgage payments?
- Partnership: The homeowner wants to work with the lender to come to a conclusion and determine an appropriate resolution that benefits both sides.
- Objective: If you want to keep your home, you need to convey a willingness to defend your home. This could be hiring an attorney or doing your part to solve your financial problems.
Remember, just because you might have missed a mortgage payment or two does not mean you will face a foreclosure situation immediately. However, you do need to speak with the bank to ensure it does not metastasize. Lenders will typically wait up to six months’ worth of missed mortgage payments before initiating the foreclosure process.
Response to Plaintiff
After you have received foreclosure documents, it is imperative that you respond to these forms within 20 days. The best way to reply is with a Statement of Defense form or a Demand for Notice. However, should you fail to answer in the allotted period, the inaction concedes that you will not fight the foreclosure process. The mortgage lender will then contact the court that you are in default.
How to Avoid Foreclosure
In the end, even if you are falling behind on your mortgage payments, there are still many avenues to explore to avoid foreclosure on your residential property. Here is a brief list of actions you can take to avert disaster:
- Do Your Research: Before agreeing to the terms of a mortgage, know the provisions and determine if they are reasonable.
- Talk to Your Lender: If you have fallen on hard times, you should immediately speak with your mortgage lender.
- Seek Financial Help: Whether you are drowning in debt or you are tapping into your savings frequently, immediately seek financial help before it spirals out of control.
- Attorney: Whatever happens, be sure to consider getting in touch with a real estate lawyer.
- Home Loan Options: Speak with a mortgage lender and determine if there are any ways to modify the terms of the home loan to prevent missing payments.
- For Sale: In the end, if it is becoming too overwhelming to maintain a home, speak with a real estate agent and sell your property before missing your first payment.
Be Prepared
Ultimately, buying a home is the biggest financial decision you will ever make in your lifetime. This is not something you should walk into lightly. Therefore, from the time you think about acquiring a residential property to the moment you sign the contract, you will need to do your due diligence and ensure that this is something you can afford to do. Moreover, is this a substantial investment that you can be responsible enough to manage?
