Foreclosure or Power of Sale Properties in Canada

In Canada, there are two main ways a lender can recover a mortgage debt when a borrower defaults: Judicial sale or power of sale. Judicial sale is a sale conducted under the supervision and authority of the court, where a lender must apply to the court to get the court's permission to sell the property. Power of sale allows a lender to sell property without the involvement of the court. The lender has the right to sell the property from the mortgage document and/or provincial legislation which authorizes power if sale in that province.

Power of sale is used as the lender's primary recovery method in Newfoundland, New Brunswick, Prince Edward Island, and Ontario. Whereas, Judicial sale has been adopted as the primary debt recovery vehicle in British Columbia, Alberta, Saskatchewan, Manitoba, and Quebec. In Nova Scotia, the primary recovery process is called "Mortgage Foreclosure" or "Mortgage Foreclosure and Sale," but is considered judicial, as the court is involved.

Judicial Sale vs. Power of Sale

The principal differences between power of sale and judicial sale are:

The extent of court involvement. There is virtually no court involvement in the power of sale provinces, while in judicial sale provinces, the court is extensively involved: Ordering that the property be sold; Confirming the sale procedure after it occurs, and; Hearing any application for a deficiency judgment.
The way in which the process is started. In power of sale provinces, sending a notice to the borrower and current owner of the property starts the process. In judicial sale provinces, a lawsuit against the borrower, and others who may be liable, starts the process.
The way in which a deficiency judgment is sought. In power of sale provinces, a lender seeking a deficiency judgment must start an action against the borrower after the property has been sold. In judicial sale provinces, the deficiency judgment action is started as part of the main action, or suing, of the borrower.

Foreclosure proceedings in Ontario are quite speedy, as the proceedings are usually laid out in the mortgage documents. Power of sale was initially developed in Ontario by lenders who wanted a faster way to dispose of property and recover debt. As a result, they began to include power of sale provisions in mortgages that would allow them to dispose of property under the borrower's default and without having to resort to the courts. Power of sale is now part of the Ontario Mortgages Act.

The Mortgages Act refers to two types of power of sale: Contractual and statutory. Contractual power of sale is when the mortgage documents have included power of sale provisions. Statutory power of sale is when the mortgage documents have not included power of sale provisions. While statutory power of sale is very rare, the lender can still exercise power of sale as long as the borrower has defaulted for three months or more.

Both types of power of sale are started by giving a notice to the borrower after 15 days of default. The notice must be given to anyone having an interest in the property, including subsequent encumbrancers, statutory lien holders, or people who have advised the lender in writing, that they have an interest in the property.

Notice of Sale Under Mortgage

The notice is attached to the Mortgages Act, and is called a Notice of Sale Under Mortgage. It advised of the lender's intention to exercise the power of sale, and includes details of the mortgage, such as:

The date the mortgage was made.
The parties to the mortgage and the property mortgaged.
The amounts owing.
A warning that if the amounts owing are not paid by a specified date, the lender will sell the property.

If the power of sale is contractual, the borrower has 35 days to pay, unless otherwise stated in the mortgage agreements. If the power of sale is statutory, the borrower has 45 days to pay. The lender cannot do anything further within this "redemption" period, but by paying the amounts owing, the borrower can redeem the mortgage.

Once the redemption period expires and the borrower has failed to correct the default, the lender can sell the property. Under power of sale, the property can be sold by auction, private contract, or tender. Usually the property is listed with a real estate agent and placed on the market for sale. To ensure that the property comes to the attention of a large segment of the market, guidelines have been set up, including; listing the property with a multiple listing service, obtaining appraisals, and ensuring the listing is for the usual period of such properties.

Once the property is sold and if there is any surplus, the lender must account to the borrower(s), and other subsequent encumbrancers. The Mortgage Act requires that the proceeds of the sale first be applied to the cost of conducting the sale, then to interest and cost owing under the mortgage, then to principal money owing under the mortgage, next to pay any amounts due to subsequent encumbrancers, and finally to pay tenants' security deposits.

Foreclosure scares people because it means they may lose their house. But if you face foreclosure, you may still be able to help yourself if you understand what it is and how it works.

What is foreclosure?
Foreclosure is a legal action that a moneylender can take if a person who borrowed money using a mortgage stops paying back the mortgage. Foreclosure allows the lender to take or sell the person's house by first getting a court's permission to do so.

What is a mortgage?
A mortgage is a contract between a borrower and a lender to repay a loan. It gives the lender some assurance that the borrower will pay back the borrowed money. When you get a mortgage to buy a house, you borrow money from a person or company and you promise to pay back that money, usually with interest and in regular payments. The lender makes sure you'll repay the loan with a mortgage, or "charge", against your house, which is registered at the Land Title Office. You have the right to pay off the mortgage and get the charge on your house removed. For more on mortgages, called "Mortgages and Financing a House Purchase".

What happens if you miss a mortgage payment or make a late payment?
You do not automatically lose your house. Lenders don't want to foreclose if they don't have to because it is expensive and takes a lot of time. A lender will probably not start to foreclose until two or three months after you stop paying. Normally, a lender will first send letters demanding payment. Then, if you don't reply, the lender will usually start to foreclose and sue you at the same time.

If you have a short-term problem, like a temporary layoff, you may be able to make a deal with the lender to make smaller payments for a time, and add the amounts you fall behind to the total amount of your mortgage. Or you may be able to make smaller payments for a while and a larger catch-up payment later. Most lenders would rather make some sort of deal and keep the mortgage in good standing, instead of starting expensive foreclosure proceedings in court.

The law tries to help you if you have a good chance of paying what you owe and if you try to get your finances in order. Only in the worst case may you lose your house and any "equity" you've built up in it. Equity is the amount that your house value exceeds your mortgage loan and any other debts that other lenders have registered against your house.

If a lender starts to foreclose, what happens first?
The lender first applies to court for an "order nisi", which is the first order of foreclosure. If there's a Supreme Court Registry where your house is located, the lender has to start proceedings there, unless you agree otherwise.

You get a document called a "petition for foreclosure", which is the lender's application to the court. At the same time, the lender may also sue you in the same court proceeding for the amount of the mortgage that you still owe.

You must file a document called an "Appearance" within seven days of getting the petition
You can get an Appearance form from the court registry. You must file the Appearance at the court address shown on the petition. Once you do this, no one can take any steps in the foreclosure without notifying you. If you don't file an Appearance, the foreclosure will go ahead without you, and you won't be able to protect yourself. After you file the Appearance, you will get a document called a "Notice of Hearing", which tells you when the lender will ask the judge for the order nisi to start the foreclosure.

What happens at the hearing?
The court will give the lender an order nisi, but it will also give you time to "redeem" the mortgage by paying the full amount you owe, plus interest, costs and taxes. This time is called the "redemption period" and it's usually 6 months. But sometimes the lender will ask the court for a shorter redemption period. So one good reason to attend the court hearing is to ask the judge for as much time as possible to get the money to pay off the mortgage or sell the house. If you need more time, you can ask for an extension. If you ask for a long redemption period or an extension, the court will want to know what you have done to pay off the mortgage and what chance you have of paying the mortgage or selling the house on your own or through your own real estate agent. It's better to use an agent in this case.

When the redemption period ends, the court can give the lender a final order of foreclosure - see "order absolute," below. Or, the lender can ask the court for the right to have their own real estate agent list your house for sale. If there are other people or companies with a charge against your house, besides the lender who started to foreclose, they may ask for the right to sell your house. If the court gives the lender or anyone else the right to sell your house, it gives them "conduct of sale". If anyone asks the court for conduct of sale for your house, you should ask the court to give you exclusive conduct instead. This means that only you are in charge of selling it. Or you can ask the court to give you at least joint conduct with the other person or company, so you have some control.

You can do two things during the redemption period
You can pay off the lender that started to foreclose. To get the money for this, you can try to borrow from another lender or a relative, at a lower interest rate or over a longer repayment period. That would let you pay off the first mortgage and lower your monthly payments. But this may be hard, because most lenders look at your income to decide whether to give you a mortgage. And your income may be what stopped you from paying your current mortgage in the first place, which led to this situation.

Your other option during the redemption period is to try and sell the house, preferably using your own real estate agent. Invite several experienced real estate salespeople who do business in your area to look through your house and tell you what they think it would sell for. Be honest with them about your situation. Then choose the realtor you trust the most or feel most comfortable with. If you sell the house, you can use the money from the sale, first to pay any tax you owe, and then to pay the mortgage and other charges registered against the title, including court costs. If there's any money left over (equity), you keep it. But if the money from selling your house doesn't completely pay off all of the lenders, you may have to pay them the difference. Meanwhile, if the lender or anyone else with a charge against your house gets an offer to buy your house, they can apply to court for an order authorizing that sale.

What if you have no equity in your home?
If you owe more than you can sell the house for, you will probably want to get out of the situation with as little expense and trouble as possible. But you should still take action instead of ignoring the problem. You may want to work with the lender to minimize costs by agreeing to the foreclosure. Normally, you would only do this if the lender will give you a full release from your mortgage, meaning you won't owe the lender any more money. If the lender won't agree to this, you can just let the foreclosure proceedings go ahead and use the time as a rent-free period to get your finances back in order. If any other people or companies with debts registered against your house are not paid from the money from selling your house in the foreclosure, you will still have to deal with them. Otherwise, they can sue you for any money you still owe them.

The lender can apply to court for an "order absolute"
The final order for foreclosure is called an "order absolute," and it comes after the redemption period ends. If the lender applies for an order absolute and the court grants it, the house then belongs to the lender and you have to leave it. You lose all rights to the house. You will no longer owe the lender any money, but if anyone registered a debt against your house after the mortgage, you'll still owe that money. In exceptional cases, you can apply to the court for relief from losing your house if you can pay the balance in full. Then the court can order the lender to transfer the house back to you.

If the court makes an order absolute, you owe nothing more to the lender
If the lender sells your house after getting an order absolute, but doesn't get enough money from the sale to pay off the mortgage, you don't have to pay the difference. But lenders do not usually ask the court for an order absolute. Instead, they will usually sue you when they start to foreclose and ask the court to sell your house to pay off the loan. If the money from selling your home doesn't completely pay off the mortgage loan, the lender can try to collect the difference from you.

What happens if you have a second mortgage or other charges registered against your house?
Any mortgages or charges registered before the lender's mortgage continue and are still valid. But any that were registered after the lender's mortgage are cancelled and the holders of those charges lose their security. For example, if you have two mortgages on your house, and the first lender forecloses, the second lender will have to pay off the first lender or lose its security. Then the second lender would have to try to get you to pay its loss.

Summary
A mortgage is a contract to repay a loan, secured with a charge on land. It's registered against your property in the Land Title Office. If you fail to pay the mortgage, for example, by falling behind in your mortgage payments, the lender may start to foreclose. Then if you can't pay the mortgage loan in full, either by selling your house or in some other way, the lender can take your property or sell it to pay off the loan.

If you receive a foreclosure petition, get legal advice. It doesn't cost much to have a first meeting with a lawyer. As well, you should see a lawyer if anyone asks you or your spouse to sign any new documents, because your spouse may not be liable under the original mortgage documents.

Distress Sales / Bank Power of Sale

Distress Sales resulting from bank foreclosures or Power of Sale often represent a great way to get a fantastic deal on a home. It's not easy for the average homeowner to find these deals, because you have to keep scouring the paper to see when one comes up.

If you're the type of person who recognizes what a great deal some of these properties could represent, you will be interested to know about a new free computerized service which automatically searches out and downloads a current list of all such properties day in and day out. When you receive this free, no obligation service, you're automatically plugged in to the most current list of Foreclosure or Power of Sale Properties on the market, in the price range and area that interests you. This FREE service every week will save you a lot of research and running around.

Here's how it works. Every week, you will receive a FREE computerized report listing the current Foreclosure or Power of Sale properties in your desired price range and location. There is no cost for this information, and absolutely no obligation. This insider information, sent to you in an incredibly simple and efficient format, will give you a huge advantage over other buyers in the marketplace.

You can request this free service by simply sending me a message by filling out the information on the form including the specific price range and area you would like the "Foreclosure or Power of Sale Weekly Report" on. When you have completed the form just click the "Submit" button at the bottom of the page.

I can work with any mortgage provide, and has relationships with most lenders to sell your home quickly, and get you relief from the note and also any deficiency. I will get you full relief from your underlying mortgage note regardless of how much you owe.
You may even be able to stay in your home!

How can I help you?

In default?
In bankruptcy?
How will the new laws affect me?
Trustees sale?
No Equity?
Upside-down on value?
Multiple mortgages?

Contact Nadeem Khan today to set up a no hassle, no obligation consultation specific to your foreclosure needs. Don't trust your financial future to small time investors with no license to practice Real Estate, they do not have your best interest in mind. Don't trust your future to a cardboard sign at the end of a free way off ramp. Call the Realtor who specializes in this type real estate and cares about you and your family.

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