Under the law in BC, a mortgage gives the lender a “charge” — meaning an interest or a right — against the property being purchased. That charge gives the lender rights if the borrower “defaults” on the mortgage. The most common way for a borrower to default is by not making payments under the mortgage as promised.
If you default on your mortgage, the lender has the right to “accelerate” (speed up) the mortgage. This allows the lender to claim the full balance owed under the mortgage, plus interest and other costs, even though the mortgage term hasn’t yet expired.
The lender can start legal proceedings to take the property or sell it to pay the mortgage debt. This legal process is called foreclosure.
"foreclosure" means a proceeding, commenced by a vendor under an agreement for sale, in which the relief claimed is an order for one or more of the following:
(a) specific performance of the agreement;
(b) cancellation of the agreement;
(c) determination of the agreement;
Following a missed or late mortgage payment, you don’t automatically lose your home. Lenders don’t want to foreclose if they don’t have to, as it’s an expensive process and takes time. A lender will likely not start to foreclose until after two or three months of missed mortgage payments.
If you miss a mortgage payment, the lender will usually send a reminder letter. If they don’t hear from you or receive the missed payment, the lender will then follow up with a demand letter.
In fact, under the law, the lender must send you a demand letter before they can start legal proceedings to take your home.
The demand letter must say exactly what you owe. It must also say that:
If you have a short-term problem, like a temporary layoff from work, you may be able to negotiate with the lender. For example, you might offer to make smaller payments for a time, and add the amounts you fall behind to the total amount of your mortgage. Or, you might offer 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 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 cases are you likely to lose your home and any equity you’ve built up in it. Equity is the amount your home value exceeds your mortgage loan and any other debts registered against your home.
At the first court hearing in a foreclosure action, the lender asks the court for an order nisi. This order sets the length of the “redemption period”, which is the time period during which you can redeem, or pay off, the mortgage. The order nisi also includes a personal judgment against you for the amount you owe.
"redemption" means the payment, fulfillment or performance by the purchaser or person claiming through the purchaser, of all obligations secured by the property and, if there has been a breach or default of the purchaser or person claiming through the purchaser, by payment of
(a) all expenses or disbursements reasonably made or incurred by the vendor in respect of the property, including taxes, repairs and payments in respect of other encumbrances, and
(b) reasonable compensation for costs incurred by the vendor in bringing a proceeding or seeking to enforce the obligations of the purchaser
to the extent provided for in the agreement for sale or in the Supreme Court Civil Rules.
Under the law in BC, the default redemption period is six months. However, the court can order that it be shortened or extended. 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 home.
Courts rarely order a redemption period longer than six months. What is more common is to apply later to extend the redemption period beyond six months. You will need to show you have enough equity in the property to pay the lender the amount owed. You also need to show there’s a reasonable chance of payment within the added time.
During the redemption period, the lender (or another creditor) may ask the court for an order for “conduct of sale”. This order gives the creditor control over selling your home to cover what you owe.
15 The court may, before or after judgment in a proceeding
(a) by a mortgagee, for the foreclosure of the equity of redemption in mortgaged property, or
(b) by a vendor of land, where a claim for the cancellation of the agreement is made, with or without a claim for the forfeiture of money paid on account of the purchase price,
on the application of a person who has an interest in the property or land, direct a sale of the property or land on the terms the court considers just.
You might be able to oppose the order by showing you have equity in the property or you are making efforts to sell the property yourself. You can argue that your efforts to sell the property are preferable, since creditors may be inclined to want to sell the property faster, at a lower price, than you would like.
If the court gives the lender or another creditor conduct of sale, you cannot sell the property yourself. But you may be able to oppose the approval of the sale. Court approval must be obtained for any sale. The creditor with conduct of sale presents a buyer’s offer at a court hearing. You may be able to argue the offer isn’t enough, and that more time should be allowed to get a better price. That said, where there is more than one offer, the property will almost certainly be sold.
During the redemption period, you have options, depending on your circumstances.
One option is to redeem the mortgage (pay it off). To get the money for this, you can try to borrow from another lender or a relative. You might seek a longer repayment period or a lower interest rate. Doing so could allow you to pay off the mortgage and lower your monthly payments. However, getting a loan in the amount needed may be difficult. Most lenders look at your income to decide whether to give you a mortgage and your income may be what caused you to fall behind in your mortgage payments in the first place, resulting in the foreclosure action.
Or you can try to sell the home. If you choose to try and sell your home it is imperative that you act quickly. Call me right away, I offer a free evaluation service to help you get the absolute most for your home. I can offer services and options that will increase the value of your home to ensure that you receive top dollar for your home in the shortest time and with the least amount of hassle. If you sell the home, you can use the money from the sale, first to pay any property 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, you keep it. But if the money from selling your home doesn’t completely pay off all the lenders, you may have to pay them the difference.
The final order for foreclosure is called an “order absolute”. It comes after the redemption period ends. If the lender applies for an order absolute and the court grants it, the home then belongs to the lender and you must leave it. You lose all rights to the home.
If the lender gets an order absolute, and registers title in its own name, it cannot make any further claims against you. It can sell the home, but if the sale does not produce enough money to pay off the mortgage, you do not have to pay the difference.
Lenders do not usually ask the court for an order absolute. Instead, they more commonly ask the court for an order for conduct of sale, to sell your home to pay off the loan. If the money from selling your home doesn’t completely pay off the mortgage loan, the lender can attempt to collect the difference from you, relying on the personal judgment against you in the “order nisi”.
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