What to Know When Your Home Is Going into Foreclosure

Many people, through various circumstances, cannot keep up with their home mortgage payments. Missing mortgage payments, not maintaining the insurance, or not 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.

For informational purposes only. Always consult with an attorney before proceeding with any real estate transaction, including a home foreclosure.

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 permitting significant damage 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, many unpredictable events 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 happen may make it 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 lender's lawyer providing notice that the foreclosure process will be initiated. This does not mean that the property must go into foreclosure. A homeowner can make the payments owed to the lender and cover the lawyer's fees. However, those who may have already missed payments may be unable 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 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 for 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.

Options for Those Behind on Their Mortgage

Those who have fallen behind in their mortgage payments may find it best to work with the lender to develop a plan both parties can agree on. Essentially, the final goal is for the lender to get their money and for the homeowner to keep their home. Several options are available to help prevent foreclosure and make the lender happy with a plan for the homeowner to get caught up on payments.

It may be possible to ask for a payment deferral. This option is standard for those who have fallen behind on mortgage payments during a recent, short-term change in their economic status. 

Renegotiating the mortgage might be an option but requires the lender to agree to the loan modification. For example, if the homeowner has a 15-year amortization, it might be possible to renegotiate the loan to a 25-year amortization. The new loan includes all arrears and is now a lower payment that is current. If the current lender does not renegotiate the loan, it might be possible to seek a new lender and get a new mortgage.

File for bankruptcy to help with mortgage payments and other debts, which might also be in arrears. Bankruptcy can help homeowners keep their homes by renegotiating their finances through a reorganization of their debt, helping them avoid foreclosure. 

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. 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 as when one has signed a personal guarantee. Otherwise, mortgage loans are usually non-recourse loans.

Those with significant equity in a home may want to extend the redemption period, allowing them to live on the property for a longer period, to find a buyer outside of the court-ordered sale of the property. When circumstances make it difficult to make mortgage payments, speak with the lender or an attorney to learn more about all mortgage payment options.

For informational purposes only. Always consult with a certified tax expert before proceeding with any real estate transaction.