Business Bankruptcy in Canada is primarily governed by the Bankruptcy and Insolvency Act (BIA), a…
If you’re behind on your mortgage payments, you may be wondering whether filing Bankruptcy can help save your home. Foreclosure is an undesirable outcome for both you and the lender. What can you do? Can Bankruptcy hurt you or help you? Here’s what you need to know about Ontario mortgage foreclosure and Bankruptcy in Canada.
Power of Sale, Foreclosure, Bankruptcy: What Does It All Mean?
Before you make any decisions you’ll need to understand what each of these legal processes entails and how they might affect home ownership. Let’s take a closer look.
Foreclosure is a word that may send shivers up the spine of any homeowner. But keep in mind that they are rare in Canada. The process is both lengthy for all parties and expensive for the lender.
In Ontario, residential lenders normally go for a power of sale rather than a foreclosure. There are some slight differences between the provinces, as well as some key differences between these two processes. As a homeowner, you should be aware of the differences and how the processes work.
Power of Sale
Power of sale does not involve the court and, in fact, is intended to keep foreclosures out of the court system. It is a relatively fast process, around six months. The lender takes possession of the property, but not the title. They are obligated to sell the property at fair market value rather than at a deeply discounted price. The homeowner, however, gets to keep the proceeds of the sale, minus the debt repayment and any fees due.
Foreclosure is a court process wherein the lender must sue and wait for the judge to issue a court order. It can take longer than a year. Once the lender has the Writ of Possession, they take ownership of the property and the title. The property is offered in bank foreclosures auctions and all proceeds go to the lender. The homeowner gets nothing.
How Does the Foreclosure Process Work?
Power of sale and foreclosure are similar processes. Following the Notice of Sale, there is a 35 to 45 day redemption period, during which the homeowner can bring the mortgage up to date. If that does not happen, the Statement of Claim is issued. This document identifies the process as power of sale or as a foreclosure.
Again, the main difference is in the proceeds of the sale. After the power of sale process is complete, the homeowner is entitled to any remaining equity. In contrast, with a foreclosure, the homeowner gets nothing. For both processes, the lender is unable to sue to recoup a shortfall. If the home sale is unprofitable, the lender must absorb the loss.
Bankruptcy does not result in foreclosure or power of sale. Rather, it is a legal process intended to give hard working people a chance to rebuild their financial lives and find relief from the crushing burden of too much debt. During the process, you’ll file for Bankruptcy with a Licensed Insolvency Trustee (LIT), who will put the paperwork in order and transmit the information to the Office of the Superintendent of Bankruptcy.
Once you have filed for Bankruptcy protection, creditors are notified and they can no longer contact you. You’ll need to fulfill certain obligations such as providing information to the LIT and attending two credit counselling sessions. You can be free from Bankruptcy, as well as your unsecured debt, in as little as nine months.
Can I Keep My House?
But what about your house? The Bankruptcy process is one that is intended to help, not hurt honest people. Mortgage lenders, as mentioned, don’t want your home. If your mortgage payments are up to date and your equity is less than $10,000, lenders will not foreclose on the mortgage just because you filed Bankruptcy. Once you are free of other debt, it will be easier for you to keep up with your mortgage payments.
If you have fallen behind on your mortgage payments, there are other options for you. You’ll want to discuss these options with a Licensed Insolvency Trustee.
What to Do to Stop Foreclosure or Power of Sale
Here are some tips that will help you if you are facing foreclosure or feel you may be in danger of foreclosure due to financial difficulty.
Tip 1: Always Pay Your Mortgage First
After food, your mortgage should be the next priority. Just one missed payment can put you in danger of foreclosure. Call your unsecured creditors and your utility providers. You may be able to negotiate with them to pay a reduced amount or skip a payment. Meanwhile, examine your lifestyle. If this is a temporary financial setback, do whatever you must do to reduce your living expenses.
Tip 2: Don’t Wait to Take Action
If you have not yet missed a payment but you anticipate financial difficulty in the future, contact your lender right away. You may be able to skip a payment, extend the terms of your mortgage, or arrange lower payments in the future. It is in their best interest, as well, to work with you when the problem can be remedied. Candidly disclose the details of your situation so that the lender can make an informed decision.
Tip 3: If You Waited to Take Action, Start Now
You’ve missed three or more payments and successfully avoided both the polite and the more urgent reminders. Now what? You’re in mortgage default. Call the lender. If your situation seems permanent, they may still work with you to modify your loan or even downsize to another house.
Tip 4: The Do-Nothing Option is Not an Option
If you try to work out the situation while waiting for a break, it’s likely that you will lose your home to the bank. The bank will sell the property, typically at a reduced price auction. Although you are entitled to whatever equity remains after the sale, there isn’t likely to be any. The house will probably sell at a low price, and any fees that you owe will be deducted from the proceeds.
Tip 5: Sell the Home
The Canadian market is currently hot and real estate inventory is limited. If you have significant equity in your home, you may be able to sell your house before the lender takes possession. This would get you out from under mortgage debt and allow you to find housing that suits your current budget.
Tip 6: Contact a Licensed Insolvency Trustee
Whatever else you choose to do, now may be the time to consult with a Licensed Insolvency Trustee. Although bankruptcy is one solution to overwhelming debt, it certainly isn’t your only choice. A LIT is the only person qualified in Canada to file bankruptcy on your behalf or show you other options accorded to you by law. There may be a way to keep your house, reduce or eliminate your debt, and secure your financial future for you and your loved ones.
Take Early Action
Above all, keep in mind that your mortgage lender wants their money, not your house. By getting on top of the situation early, you can avoid going through foreclosure and get yourself back on a good financial track. Given the current state of the economy, there are many people in our community in your same situation.
Whether you want to keep your home or not, if you need help with your debt situation and want to explore all of your options, call Adamson & Associates today at 519-319-JOHN (5646). We live and work here; we understand. Schedule a free, no-obligation consultation today.