Losing a home to foreclosure is a distressing possibility for any Canadian facing financial hardship. However, foreclosure processes differ widely across provinces. Understanding exactly how foreclosure mortgages work in Canada is critical to protecting your rights and exploring relief options.
What is a foreclosure?
Foreclosure is the legal process initiated when homeowners default on mortgage payments. The lender repossesses the home, functioning as loan collateral to recoup losses from the sale proceeds.
If mortgage payments are repeatedly missed, the lender can foreclose by forcing a sale to recoup those funds. Legally, they hold a lien on the property title pending full repayment of the loan.
Compared to the US, foreclosures are less common in Canada due to more lengthy and costly procedures. However, they still occur as a lender’s last resort after failed attempts at resolving the default.
How many mortgage payments can you miss before facing foreclosure?
Foreclosure does not result from a single missed payment. Most lenders allow reasonable grace periods to remedy temporary financial issues. However, prolonged delinquency prompts lenders to initiate legal processes to transfer property ownership.
Initial contact often occurs after the second missed monthly payment. At this stage, bringing the mortgage current again typically prevents further action. If mortgage nonpayment continues for a third consecutive month, expect escalated collection efforts and warnings of impending legal filings. Once submitted to the courts, reversing foreclosure becomes considerably more difficult.
Typical foreclosure spans 6-12 months, depending on judicial backlogs and appeals. Power of sale resolutions transpire in as little as six weeks.
What are your mortgage options to stop foreclosure?
Multiple financial strategies exist for curing mortgage defaults and preventing foreclosure completion:
Reinstatement
This involves paying all arrears, penalties, and legal costs to bring mortgages current. While requiring significant funds, reinstatement immediately stops foreclosure proceedings. Homeowners might access funds through borrowed amounts from family, retirement savings (though tax implications apply), or asset sales.
Payment deferral
Lenders may agree to add missed payments to principal balances or defer payments temporarily. These arrangements provide breathing room during temporary financial difficulties. Typically available for 6-12 months, deferrals allow recovery without immediate payment pressure.
Refinancing your existing mortgage
Lenders allow refinancing to prevent foreclosure if homeowners can qualify and loans are repaid quickly. Refinancing replaces existing home loans with new ones, offering preferable terms like lower interest rates or extended amortization periods for reduced payments. Refinancing works best before missing payments.
Selling your home
When other options prove unavailable, controlled sales prevent foreclosure’s credit devastation. Homeowners retain control over timing and pricing, potentially preserving equity. This option requires swift action before legal proceedings advance too far.
If you are unable to repay immediately or do not wish to sell your home, securing alternative mortgage financing during financial distress presents unique challenges and opportunities.
Second mortgage
Second mortgages can provide immediate funds to bring your first mortgage current. However, qualification criteria become stringent when you’re already in default:
| Lender Type | Loan-to-Value Limit | Interest Rate Range | Approval Timeline |
|---|---|---|---|
| Traditional Banks | Up to 65% | 6-9% | 2-4 weeks |
| B-Lenders | Up to 75% | 8-12% | 1-2 weeks |
| Private Lenders | Up to 85% | 12-18% | 2-5 days |
Home equity loan
Home equity loans permit lump-sum borrowing against property values to fund mortgage catch-up payments. Qualification weighs credit scores and income levels against equity percentages. Remember that additional debts must be repaid, which can further strain homeowners.
Home equity line of credit (HELOC)
HELOCs resemble credit cards with borrowing limits correlating to home equity. However, lenders seldom approve those in foreclosure, given higher default risks.
When is it too late to stop foreclosure?
Technically, foreclosure prevention remains possible until actual property transfer or sale completion. Even hours before scheduled auctions, full payment of arrears stops proceedings. This reality underscores the importance of exhausting all funding options, including emergency private lending, family assistance, or asset liquidation.
Each province maintains specific “points of no return” in foreclosure proceedings. Ontario’s power of sale becomes irreversible once sales close. Judicial provinces typically allow redemption until court-ordered transfer completion. Understanding your province’s specific deadlines proves crucial for timing last-minute interventions.
What happens after foreclosure?
Foreclosure conclusion consequences differ markedly between the power of sale and formal foreclosure proceedings.
If the property sells for less than owed
In provinces where a power of sale is used, former owners can be held liable for any remaining mortgage balances that exceed the revenue from the sale. Lenders have the option to sue or assign residual account balances for collection.
On the other hand, formal foreclosures completely eliminate former mortgage obligations once the property has been surrendered, even if the sale of the home does not fully repay the lenders.
If the property sells for more than owed
Consumers who undergo a power of sale have the opportunity to reclaim any surplus balances that exceed what they owe to lenders. In contrast, during foreclosure, any excess profits are retained by the mortgage holder.
After foreclosure, securing financing for future home purchases may require individuals to demonstrate stable income and good creditworthiness, make larger down payments, and possibly face higher interest rates, including subprime rates.
FAQs related to foreclosure mortgages
How does foreclosure affect your credit score?
Foreclosures massively damage credit reputations, given their severity compared to routine late payments. According to TransUnion, foreclosure dings remain evident for six to seven years. Predictably, impaired credit posthumously compounds the struggles originating from many foreclosures. Still, diligent credit repair efforts, combined with prudent borrowing and timely payments, can significantly replenish credit scores over time.
What should you do if you're facing foreclosure?
Never disregard foreclosure notices. Communicate with lenders instantly and document all discussions for later reference. Seeking advice early maximizes solution opportunities. Insolvency advisors offer preliminary consultations at no charge. Act decisively and proactively. Once properties transfer ownership, reversals become improbable. Prioritize addressing risks to essential shelter security for households.
Can I sell my property if foreclosure has started?
Yes, property sales remain possible during early foreclosure stages. However, advancing legal proceedings create timing pressures and potential complications. Immediate action improves sale success probability and price optimization.
What happens to my equity in foreclosure?
Remaining equity after debt satisfaction returns to homeowners in both foreclosure and power of sale. Judicial foreclosures to lenders (rather than sales) may eliminate equity rights entirely. This distinction emphasizes the importance of forcing sales rather than property transfers.
Can bankruptcy stop foreclosure?
Bankruptcy doesn't automatically stop foreclosure on secured debts like mortgages. However, bankruptcy may free cash flow by eliminating unsecured debts. This improved financial position might enable mortgage reinstatement.
The bottom line
Losing homes definitely ranks among life’s most emotionally and financially disruptive misfortunes. Extensive preparation and early involvement of knowledgeable experts best equip households to navigate potential foreclosure crises.
While seemingly hopeless once begun, foreclosures may yet be halted by acting urgently to marshal resources, document claims, and investigate relief contingencies. But time works against distressed mortgage holders as legal machinations grind inexorably onward.