Definition of Foreclosure
If a mortgage borrower can no longer pay mortgage payments or otherwise repay the mortgage loan, the mortgage goes into foreclosure.
A mortgage lender will seek to sell the property to pay off the remainder of the mortgage. If necessary, the mortgage borrower will be ordered by a court to vacate the property. If the mortgage borrower does not wish to go through a mortgage foreclosure process, it may negotiate with the mortgage holder to have the property transferred to them.
Acceleration of the Mortgage in Default
If a mortgage borrower fails to comply with essential obligations of the mortgage loan, such as failing to make monthly payments, failing to pay real estate taxes or keeping the property insured, the mortgage holder may seek to make the balance of the mortgage due and payable.
This is known as an acceleration clause. The mortgage holder will demand all remaining payments be made within a short period of time, such as 30 to 60 days. During this period of time, the mortgage holder may, but is not obligated to accept late payments to catch up missed payments. The mortgage holder must make demand on the mortgage borrower for payment of the mortgage balance before it may commence a foreclosure action.
Court Action for Foreclosure
If the mortgage borrower fails to respond, pay the balance or obtain a work out solution with the mortgage holder, a foreclosure court action will be commenced, with the mortgage holder referred to as the petitioner, and the mortgage borrower referred to as the respondent. Other parties that may have an interest in the property, such as second mortgage holders, lien holders, guarantors or those with a partial ownership interest in the property will also be named as parties to the court action.
The respondents will have a short period of time to answer the allegations of the Petition, usually 22 days, unless extended. If the respondents wish to contest the accuracy of the Petition, they must file an Answer. Depending on the validity of the contested allegations, it may take many months for the matter to come to trial.
During the proceedings, the mortgage holder will usually obtain an Order Nisi, or a limited and sometimes Temporary Order, which will be granted unless the respondents can show the court good reason to deny the order. At this stage, the court will usually determine the amount owed on the mortgage, and how long the mortgage borrower will be granted to repay the mortgage in full, usually a period of six months.
In a few cases, the period may be extended beyond six months. If it is shown by the mortgage holder that the property will not bring sufficient proceeds to repay the mortgage loan in full, the court may order a shorter redemption period.
Returning the Mortgage to Good Standing
During the proceedings, provided the mortgage has not matured, the court does have the power to order the mortgage holder to accept the amount of arrears and return the mortgage to good standing. It will take in account the number of missed payments, why they were missed, if the mortgage had been in default previous and the payment history of the mortgage borrower.
Order Absolute and Sale
If the court does not order the mortgage returned to good standing, it will order judgment against the respondents, in the amount of the balance of the mortgage, accrued interest and the mortgage holder’s costs. As a judgment, the mortgage holder may seek to either sell the property or seize non-exempt assets of the respondents. After the redemption period has expired, the petitioner will notify the court of payments received, if any, and will seek to have the Order Nisi made permanent. It will also seek an Order for Conduct of Sale, and proceed to sell the property. If the sale does not bring sufficient funds to repay the mortgage, the mortgage holder may apply to the court for a Deficiency Order, and seek payment of the deficiency from other assets of the mortgage borrower.
At First Foundation.ca, we recommend that any of our customers experiencing financial difficulties attempt to resolve them at the earliest possible period. Some of our mortgage lenders may be able to work with you to extend payments, refinance or obtain alternate financing. It is by far the best course of action to explore your options at the earliest opportunity, before a foreclosure process is commenced.
If you are interested in learning more about a foreclosure, please feel free to contact us today!