Many people through changing circumstances cannot keep up with their home mortgage payments. Missing mortgage payments or not maintaining the insurance or paying the taxes on a property can lead to the lender starting the foreclosure process. Know what to expect and the options available when it comes to the beginning of the foreclosure process.
What Is Foreclosure?
Foreclosure is a legal process through which the lender or mortgagee takes ownership of and may sell a property when the mortgage had been defaulted on. Upon purchasing a home and taking out a mortgage, the borrower has agreed to make timely mortgage payments as part of the contractual agreement. Not doing so allows the lender to regain ownership of the home or property. In addition to failure to make mortgage payments, the foreclosure process may be initiated by not insuring the property, not paying condominium fees or taxes or permitted significant damage to occur to the home.
There may be many different reasons people go into foreclosure on a home. Circumstances including divorce, medical emergencies, job loss and excessive debt may all lead to an inability to make the payments required as part of a contract with a lender. Unfortunately, there are many unpredictable events that may have a direct impact on one's income and make it hard to meet certain financial obligations. Reaching out to a lender when such events do happen may make is less likely that one misses mortgage payments or accrues late payment fees.
What Is The First Step to Foreclosure?
A borrower has missed the mortgage loan payment, as a result, a Demand Letter is often sent by the lawyer of the lender providing notice that the foreclosure process will be initiated. This does not mean that the property must go into foreclosure. A Rutland North homeowner has the opportunity to make the payments owed to the lender and cover the fees of the lawyer. However, those who may have already missed payments may not be able to afford to do so.
What Happens Next in the Foreclosure Process?
After the Demand Letter is issued, one can expect a Statement of Claim. A homeowner must respond to this document within a 20 day period. The document requests for permission from the Court to foreclose on a home. Choosing not to respond will allow the lender to continue with the foreclosure process without any additional notices. A homeowner has five choices when responding to a Statement of Claim. They usually are:
- Not responding and being Noted in Default. The foreclosure process can then quickly take place without additional involvement from the homeowner.
- Negotiating a Quit Claim. Involving an attorney's services, this route will give the property's title back to the lender. A homeowners will lose any equity established and need to move out.
- Filing a Demand of Notice. This will accrue additional costs against the homeowner but will keep the homeowner involved in the notice of all court applications and allows for disputing of any issues in Court.
- Filing a Statement of Defence. A homeowner will defend the lawsuit as the lender is significantly incorrect, such as when the amount one is being sued for is substantially inaccurate or the lender lists the wrong party. This can be an expensive route to take as it increases costs against a homeowner.
- Negotiating a Consent Order for Foreclosure. The Court will need a Certificate of Independent Legal Advice attached for acceptance. Homeowners with significant equity that cannot pay the arrears can work with a lawyer to extend the period of foreclosure. A homeowner can then live in a property longer prior to having to vacate and will provide time to sell a home to a private buyer.
It is important to respond to the Statement of Claim. A homeowner with equity in their home then has additional opportunities to work with their lender and negotiate a better resolution. There are additional steps that will occur as the foreclosure process continues, including the possibility of a Court Ordered Sale.
Borrowers Under Additional Burden with Foreclosure
It is usually better to avoid going through the foreclosure process and making up arrears early in the process. As part of the foreclosure process, the borrower will, most likely, be required to pay all costs and some lenders can get a deficiency judgment on a borrower so that they may continue to seek payments from a borrower after a sale. However, a deficiency judgment only occurs with certain exceptions, such when one has signed a personal guarantee. Otherwise mortgage loans are usually non-recourse loans.
Those that have significant equity in a home may want to extend the redemption period, allowing them to live on the property for a longer period, in order to find a buyer outside of court-ordered sale of the property. When circumstances occur that may make it difficult to make mortgage payments, speak with the lender or an attorney to find out more about all mortgage payment options.