If you can’t afford to your monthly mortgage payment and have fallen behind your mortgage company may consider commencing Power of Sale or Foreclosure proceedings. You can find a description of each process and your options when you’re struggling with your mortgage below.
Power of Sale
A Power of Sale process allows a lender to evict a resident and sell the property to repay the mortgage. The mortgagee (lender) can start the power of sale process as soon as 15 days after a missed payment.
The process involves:
- Notice being provided by the lender;
- A 30-40 day redemption period in which you can get caught up on your payments;
- The lender obtaining a court order; and
- A Writ of Possession which gives the Lender the ability to evict any residents and sell the property.
The lender has a duty to sell the property for fair market value.
If the proceeds from the sale exceed the mortgage and fees any surplus is returned to the owner.
If the proceeds from the sale are less than the mortgage and fees then the lender can seek a judgement of the court and potentially garnishee wages or seize other assets to enforce their judgement.
If the lender sells the property for less than fair market value the owner could sue the lender.
A foreclosure involves the lender taking ownership of the property in exchange for forgiving the mortgage.
They have no duty to sell the property. If they do sell the property for more than they were owed they have no duty to return that surplus to the former owner. However, if they later sell the property at a loss they have no ability to collect that loss from the former owner either.
The Foreclosure process is less common and often takes up to a year to complete. Most individuals must fall a number of months behind in their payments before the formal foreclosure process begins.
Affordability needs to be your first consideration. Can you afford the costs of owning your home including mortgage payments, property taxes, maintenance, utilities, and home insurance? We suggest making a realistic budget to help you decide.
If you can afford to own your home:
- Refinance with a different lender. Consider starting fresh with a new mortgage company to get caught up on any arrears. While you may incur some mortgage break fees the costs are often lower than those associated with a second mortgage.
- Take out a second mortgage. If you are struggling with your payments on a temporary basis and have equity in your home a second mortgage can allow you to get caught up on your existing mortgage arrears. Second mortgages often involve hefty interest and fees, so you’ll need to be sure that any second mortgage payment fits your budget and won’t simply cause more stress than it alleviates.
- File a Consumer Proposal. If you could afford your home if your other unsecured debts were reduced than a Consumer Proposal may be just the ticket. A Consumer Proposal can take pressure off of your budget by stopping interest and reducing your other monthly debt payments which may be enough to help you get caught up on your mortgage arrears and stay in your home.
If you can’t afford to own your home:
- Sell or Downsize. First things first: This is a VERY difficult but important decision that needs to be made as objectively as possible. In our experience, most people have a very emotional attachment to their home and will do everything in their power, even if it isn’t in their best financial interest, to keep their homes. We suggest being realistic about your budget and taking independent action to sell your home yourself to avoid the costs and fees associated with a Power of Sale or Foreclosure process and preserve whatever equity remains in your home.
Either way, if you’re struggling with debt, and would like some advice we always suggest scheduling a free consultation with one of our Licensed Insolvency Trustees to discuss your unique personal situation and options. We’ll review your budget and provide you with an expert opinion.
Our offices can be reached at (416) 246-7771 or firstname.lastname@example.org.