As a homeowner, if you’re unable to make regular mortgage payments, the loan will ultimately fall into a state of default, forcing you to forfeit all rights to the property. This is called foreclosure.
Foreclosure is a lengthy and costly process that should be avoided whenever possible. Fortunately, most lenders are willing to work with homeowners who encounter financial difficulty, so it’s best to try and resolve issues before they escalate.
But, if the situation is unavoidable, one of two foreclosure procedures will take.
Common mortgage foreclosure processes
- Power of Sale
A Power of Sale is the most likely foreclosure approach in Ontario, New Brunswick, Newfoundland and PEI. This process is typically wrapped up within a few short weeks given that there’s very little need for court involvement.
During the process, the lender provides the homeowner with a formal written notice and grants a 35-day period in which to pay all outstanding arrears. This gives the borrower an opportunity to get back on track and save their home. If they’re unable to pay in full after this timeframe, however, they’ll then be issued an eviction order by the lender. This provides the lender with the right to sell the property in order to repay the outstanding loan without officially assuming ownership or title to the property. If there’s any money left, it will be returned to the borrower. If there’s a shortfall, the lender could sue the borrower to recover the balance.
- Judicial Foreclosure
This process relies heavily on the court system and, therefore, tends to be drawn out longer than a Power of Sale, with a resolution taking six months to a year. This is the preferred method in BC, Alberta, Manitoba, Saskatchewan, Quebec and Nova Scotia.
This is a lawsuit that requires a lender to file a Statement of Claim with the court that’s officially served to the homeowner who then has a set period of time in which to reply. If a resolution can’t be reached, the mortgaged property will be transferred to the lender and sold under court supervision. Any proceeds from the sale will be used to pay the lender or any lien holders. The borrower relinquishes all rights to any capital gains that may result from the sale of the property.
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