What is foreclosure?
-It is a legal process for a mortgagee (lender) to sell, or take ownership of, a property when the owner defaults on the mortgage. In other words, the homeowner entered into a contractual agreement in order to buy the property but has not been able to meet the promises made under the mortgage.
Acts of default under a mortgage may include-
- Failing to make mortgage payments,
- Allowing significant damage to the property,
- Failing to insure the property,
- Failing to pay taxes or condominium fees on the property.
Usually a lender does not foreclose right away because it is an expensive process. It is often in everyone`s best interest if a compromise can be reached between an owner and the lender. Ultimately the lender is worried about losing money, so they will want to sell the property to collect what is owed under the mortgage, or become the owner of the property. To get an order to sell the property, the lender must follow the legal process for foreclosure or get the owner`s consent to the sale.
The Demand Letter
You should receive a letter from your lender’s lawyer, warning you that they have been given instructions to start foreclosure proceedings at the address you last gave to your lender. There is no legal requirement for the lender’s lawyer to send you this letter, but it is a part of Alberta’s practices.
If you can make up your arrears at this stage, you will be obliged to pay the money to the lawyer. You agreed to pay the lender’s lawyer’s fees as a part of your mortgage obligations. The lender’s lawyer has not simply written one letter to you as a part of this process. Rather, they will have reviewed written instructions from their client, and will have reviewed the lender’s files and supporting documentation, too. The costs incurred by the lender’s lawyer in doing so are the borrower`s responsibility.
If the borrower is not in a position to make up the arrears and pay the fees of the lender’s lawyer, the lender’s lawyer will have no choice but to issue a Statement of Claim, which begins the lawsuit against you.
The Statement of Claim
A Statement of Claim outlines why the bank is asking the Court’s permission to foreclose on your home. You will have 20 days to respond. If you do not respond, you will be Noted in Default, and the lender will be able to proceed in the foreclosure without further notice to you.
If you have not volunteered to accept service a process server will be hired to locate and serve you with the Statement of Claim. The costs of this service and any court applications required will be added to your judgment.
Replying to the Statement of Claim
In Alberta you have one of five choices.
1. Ignore the fact that you are being sued. This is a very poor idea. You will be Noted in Default. Once Noted in Default the lender’s lawyer can proceed without any notice to you of any steps in the legal action they take. Foreclosure and judgment against you can occur in days.
2. You can negotiate a Quit Claim. That means giving the title of your property to your lender. The Courts will require a Certificate of Independent Legal Advice before they will approve the process. This is a drastic step that does require the services of a lawyer. It also means that you will be required to move out and give up any equity you may have in the property.
3. You can file a Demand of Notice. People who have no equity (or financial value) in their property and who have no hope of ever getting the mortgage caught up or paid out may want to file a Demand of Notice with the courts. That will require that the lender’s lawyer keep you advised of any court applications they are taking in the foreclosure lawsuit. That in turn will result in increased costs against you, but will give you the opportunity to ensure that all of the steps were properly taken and to dispute any problems that might arise in Court.
4. File a Statement of Defence. Filing a Statement of Defence means that you fully intend to defend the lawsuit, and contains reasons why the lender is incorrect in suing you. For example, they may have named the wrong party or the amount they are suing for is grotesquely incorrect. Choosing this route will require that you participate in each step of the lawsuit and can result in a huge amount of costs against you. That will in turn dramatically increase the judgment against you. You should be very sure that the lender is incorrect in a major way before choosing this route.
5. You can negotiate a Consent Order for Foreclosure. The Court will require that a Certificate of Independent Legal Advice being attached to the Order before they will accept it. If you have lots of equity, or value, left in your home, but just cannot make up the arrears you owe, a lawyer may be able to negotiate a longer period of foreclosure, during which you can live in your home before being forced to vacate. That would also give you the opportunity to find a private buyer, rather than face a court ordered auction.
If noted In Default, The next step in the action will be a Court application before the Master in Chambers for an Order Nisi. Supporting documentation will be:
- an affidavit of default which provides evidence to the Court as to the balance presently due and owing to the mortgagee under the terms of the mortgage;
- an affidavit of value, which is normally prepared by a qualified real estate appraiser, and which provides the Court with evidence as to the value of the land which is under foreclosure;
- a certified copy of title and general registry certificate from the Land Titles Office which provides evidence as to claims against the property which may be prior to the claim of the plaintiff mortgagee (i.e. tax arrears, builders liens, writs of execution or prior mortgages).
Every owner has a right of redemption. In the case of urban lands the period of redemption shall be six months from the date of the granting of the order.
The Court however, does have the authority to reduce this period of redemption. On applications for a shortened redemption period, the Court is normally concerned with determining the equity position of the mortgagor in default. Therefore, an applicant must provide evidence as to the amount of the arrears under the mortgage together with the total value of encumbrances registered against the property, and the value of the property in order that the Court may determine the equity held by the mortgagor in default.
Generally, if the Court is satisfied that either the mortgagor or subsequent encumbrancers have no equity in the property, or if the property has been abandoned, and the mortgagees security is being wasted, a shorter period of redemption will be granted.
Court Ordered Sale
Once the redemption period has expired, the court will decide on an order directing the sale or other means of disposing of the property.
One of the main differences of the foreclosure process in Alberta, compared to other provinces, is that in Alberta it is the court that decides who the foreclosure property will be sold to, and for what price. Once the previously mentioned redemption period has expired, the court can sell the property at any time, for any price they choose. If the foreclosed party is unable to pay off all of the financial obligations after the redemption period, then the mortgage lender will be able to foreclose on the property and list it under MLS Realtor. Once this is done, the foreclosed property is then available to be auctioned to the public.
Whether it is a bank or a 3rd party that becomes the owner of the property, they will usually be entitled to possession within 30 days. This means that whether the defendant, or a tenant, lives in the property, they will be served with an order requiring them to move within 30 days.
INDUSTRY PARTNERS –
We have good access to experienced business partners who can be hired to represent your best interests. Click on the links below for full contact details.
Reliable Law Firm in Edmonton – Craig Lupul of Stillman LLP
Reliable Law Firm in Calgary – David McKenzie of Proventure Law LLP
Realtor – Nelson Yarmoloy of Yarmoloy Group/ReMax First
***NOTE – It IS possible to be rescued in this situation via mortgage financing – I have had many successes in the past. If you are in arrears on your mortgage, or if your property is in the process of being foreclosed on, contact me right away so we can look at refinancing. The longer you wait to deal with it, the more expensive the outcome normally is. It doesn`t need to be that way. Contact me for more details. ***