Home foreclosures in Canada are a rather involved and somewhat complex process. It is through foreclosure action that lenders attempt to recoup arrears and principal balances on mortgages in default. Some of the most common causes of lenders initiating foreclosures include:
- Failure to make timely mortgage payments.
- Failing to pay homeowner taxes.
- Not carrying required home insurance coverage.
- Failure to pay HOA dues or fines.
- Permitting excessive property damage without making repairs.
The home foreclosure process in Alberta is called a Judicial Sale, and here is what homeowners can expect to occur throughout the procedure.
Typical Steps in Alberta's Foreclosure Process
Before delving into judicial sale foreclosure steps, it's important for homeowners facing this situation to understand the potential financial repercussions beyond the mortgage debt. The cold hard truth is that the costs of legal type of action taken and individuals hired to handle the foreclosure process are generally passed on to the owners. Essentially, lenders and even insurers can pursue a deficiency judgment after the foreclosure is over in an attempt to recover any remaining mortgage balances in addition to other fees incurred. Now, let's cover those judicial foreclosure steps in Alberta.
1. Initial Contact From Lender
A lender will generally send owners a letter or call after one payment is missed. While most don't begin foreclosure after a single missed payment, they do have legal rights to do so. However, most want to work with owners and may allow for a delayed payment (for a fee) to forego the time consuming foreclosure process.
2. Demand Letter
Owners who don't respond to the initial contact effort on behalf of the lender will often receive a demand letter after the second missed payment. This letter will demand that arrears must be paid immediately to prevent foreclosure and may come from an attorney, the lender or a collection agency.
3. Statement of Foreclosure Claim
Once a lender has begun the foreclosure process in Alberta, owners receive a statement of claim that is filed with the Court of Queen's Bench. This lets the party know that action has been taken by the lender to secure the title and reclaim the home. Because lawyers handle this paperwork, the borrower is likely to be held liable for additional costs from here on out during a foreclosure.
Potential Actions for Borrowers Facing Foreclosure
Once a statement of claim has been filed, borrowers will have a number of options they can pursue—some with greater benefits and repercussions than others.
1. Take No Action
While this is not typically advised, many borrowers take no action and ignore foreclosure warnings from lawyers and lenders. After the grace period in the notice to take action has passed, lenders can skip ahead to the final stages of foreclosure.
2. Repay Arrears During Redemption Periods
Until a final decree of foreclosure is declared by the courts, Alberta borrowers maintain a right to redemption, known as a foreclosure redemption period. As it's name implies, this negotiated period usually spans from three to six months and is time that the courts allow for the debtor to 'redeem' the mortgage and bring it to current status. In some cases of high-equity properties, lenders may be open to payment arrangements.
3. Statement of Defence
Submitting a statement of defence to the courts is quite expensive, and there are very few acceptable reasons a borrower would be approved to one. For example, if the foreclosure documents filed by the lender are inaccurate or the appraised value is far off base, these may be valid reasons, but the legal expenses to do so will fall upon the borrower.
4. Demand of Notice
A demand of notice essential is a statement that borrowers desire to be kept in the loop concerning the status of a home's foreclosure. This can be useful to owners attempting to sell the home themselves or are trying to get additional time to save enough to save their home. The demand of notice leaves no room for surprises.
5. Quit Claim
This is where a borrower simply agrees to hand the title over to the lender. This isn't a recommended action to take in effort to avoid foreclosure actions without legal counsel, as owners are literally giving over any rights to the home and will likely incur additional financial penalties.
6. Consent to the Foreclosure
This is a situation that also requires legal consultation, but it might permit owners to stay in the home longer with certain stipulations and agreements being made with lenders. However, there can be steep costs, and it's not the first course of action to consider.
The Final Sale of Order By the Court
If no actionable recourse was successful, the lender will then receive an order of sale by the courts, who will decide specifics concerning the property's listing. The borrower will be help liable for listing costs and realtor fees. When an offer is made, a judge will determine whether the price is fair and will opt to accept or decline it. Any proceeds upon sale are utilized to pay any and all debts associated with the foreclosure process, while any surplus (if any) is refunded to the West Calgary home borrower.
The Effect Foreclosure Has on the Ability to Buy a Home in the Future
Going through a foreclosure in Canada does not prevent homebuyers from acquiring a mortgage loan in the future, but it can delay and complicate the process somewhat. To ensure that homebuyers have resolved the conditions leading to their foreclosures, lenders require that they wait two full years before applying for another mortgage loan. The only exceptions here are if homebuyers can prove that their default occurred due to extenuating circumstances or pay a large down payment of up to 25 percent.
Otherwise, it is important for homebuyers to work on their financial worthiness to prepare for the application process two years after the finalization of their foreclosures. To achieve loan approval, they need to show solid annual earnings and a strong history of paying all bills on time, including any and all open credit lines. Building a positive financial history can help homebuyers acquire better interest rates and lower fees, including decreased down payment terms, from their lenders.
Homebuyers will also need to earn the trust of their creditors and build a solid credit history before completing the mortgage loan application process in two years’ time. For many, it is possible to achieve this goal by acquiring and using a secured credit card. By using and paying off the secured card each month, it is possible to build a better credit score and prove financial worthiness to mortgage lenders.
Although there is a two year wait, homebuyers can benefit from reaching out to potential lenders right away to learn about the approval requirements. With this information in hand, homebuyers can formulate and follow a plan that will allow them to purchase a home after the waiting period.