Process in Canada

8 Replies

Hi Canadian BPs

For Judicial sale Foreclosures (I am in Alberta), can anyone advise step by step on how the foreclosure process works? Even if you can direct me to some trustworthy links, I would appreciate it!

Thanks,

Ram

@Ram Srinivasan

I set out to answer you this morning, but BP suddenly decided I was an unverified user and would not permit me to post .... Josh & Brandon must be trying to send me a message ;-)

Alberta is among the half of Canadian provinces which uses judicial foreclosure when a mortgage is in default.   The process is very much like that which you read about here on BP for many U.S.A. states.

When the mortgage goes into default and, after the lender and owner have exhausted any other options, the lender will begin the foreclosure process to take possession of the property.

1) In Alberta, the conventional first step will be for the lender's attorney to send a "Demand Letter" to the mortgagor advising them foreclosure proceedings are to commence.

2) If the mortgagor failed to pay the arrears as instructed in the Demand Letter, the lender's attorney will next serve the mortgagor with a Statement of Claim.  A Statement of Claim outlines why the bank is asking the Court’s permission to foreclose on the property.  The mortgagor has 20 days to respond.  If no response is made, 

3) In Alberta, the mortgagor may respond to the Statement of Claim in one of five ways:

a) Ignore the fact they are being sued. This is generally a very poor idea.  The mortgagor will be Noted in Default, and the lender will be able to proceed in the foreclosure without further notice to the mortgagor of any steps in the legal action they take.  Foreclosure and judgment can occur in days.

b) The mortgagor can negotiate a Quit Claim. This is surrendering title of the property to the 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 the mortgagor will be required to surrender any equity in the property.

c) The mortgagor 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 attorney keeps the mortgagor advised of any court applications they are taking in the foreclosure lawsuit.  This approach will result in increased costs against the mortgagor, but will provide the opportunity to ensure that all of the steps were properly taken and to dispute any problems that might arise in Court.

d) The mortgagor can file a Statement of Defence.  Filing a Statement of Defence implies the mortgagor fully intends 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 requires the mortgagor participate in each step of the lawsuit and can result in a huge legal bill in addition to the outstanding mortgage costs.  That will in turn dramatically increase the judgment of any judgement against the mortgagor.  One should be very certain the lender is incorrect in a major way before choosing this route.

e) The mortgagor 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 the mortgagor has equity remaining in the property (over and above all amounts due the lender), but cannot make up the arrears, a lawyer may be able to negotiate a longer period of foreclosure.  This would provide the mortgagor an opportunity to find a private buyer, rather than face a court ordered auction.

4) If the mortgagor is Noted in Default, the lender will net apply to the court for an Order Nisi.

5) Once the court has issued an Order, the mortgagor is entitled to a Redemption Period - typically six months for urban properties (agricultural land is different).  Note that the Court may shorten this period if there is sufficient evidence that the mortgagor, or any subsequent encumbrances, has no equity in the property.

6) Court Ordered Sale:  Once the Redemption Period has elapsed, the court will decide on an order directing the sale or other means of disposing of the property.

The foreclosure process in Alberta differs in comparison to other provinces, in that it is the court that decides to whom the foreclosure property will be sold, 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 is the owner or or a tenant lives in the property, the tenant will be served with an order requiring them to move within 30 days.

Updated over 2 years ago

The end of item 2) was truncated, but should read: If no response is made, the mortgagor will be "Noted In Default".

1(506) 471-4126

@Roy N.

Thank you for your detailed reply. I had a few follow up questions to confirm my understand. I did also spend some time researching Foreclosure process here in Alberta, and I have not found anything to date that explains it as well as you do, and I appreciate this very much.

Here are some follow up questions that I do have for you:

1) I have heard that the court/bank has a fiduciary duty to sell the property at the maximum price in order to be fair to the borrower (as the lender can sue for a deficiency judgement after foreclosure.

I have heard that any equity left over after the sale of the property will be returned to the mortgagor. However, I have also read a statement contradicting this to say that once the property is foreclosed on and sold, any left over equity belongs to the lendor. Which is right?

2) Once the lender has filed a statement of claim, does it typically mean that the lender has to catch up on all payments plus penalties? Can the lender call the entire loan balance due? Part B to this question - the redemption period, does this include solely catching up on the missed payements or does this mean paying off the lendor? I.e. is this where the opportunity in a "pre - foreclosure session truly lies? Whereby the mortgagor is desperate to refinance or sell the property in order to redeem the property?

3) In order to get a pre foreclosure list, is the only way to do this in Canada is to go to the courthouse and research the statement of claims? 

4) What kind of expenses does a lender have to bear for the foreclosure process? I know it really depends, but outside of real estate agent fees, interest payments etc, what other costs are involved? Another way of asking, is there an approximate cost one can expect to foreclose on a property?

5) When does title actually transfer from the mortgagor to the lender? Is this when the Redemption period has expired (Or consent order/Quir claim)?

Thanks in advance.

Ram

@Ram Srinivasan

Let me be upfront that I do not have firsthand experience with foreclosure in Alberta, but I have read and compared the process with foreclosure in Nova Scotia and the process flow is almost identical.   I have also been told by an attorney who works for a lender that the foreclosure provinces, with the exception of Québec, follow basically the same process.

With that wordy caveat out of the way, let me see if I can provide some additional information.

1) In those instances where the mortgagor would have equity in the property remaining after the amounts due to all lenders / lien holders have been satisfied, then any court ordered sale will take that into consideration and require the property be sold on MLS at FMV. In such a case, any amount remaining once all debts and costs have been satisfied shall be returned to the mortgagor.

Conversely, when the mortgagor has little to no equity in the property - particularly where the equity is less than the sum of all amounts owed, the court may shorten the redemption period and, at least in our experience on this end of the Country, enable the lender to take possession and sell the property at a price between what is owed and FMV.

2a) When you reach the stage where the lender has filed a Statement of Claim, the note extended to the mortgagor has been accelerated and is due in full (principal, all accrued interest and any costs or penalties).   

2b) During the redemption period the mortgagor has the right to redeem (buy back) the property.  Essentially, the mortgagor must secure the funds necessary to repay in full the mortgage(s)/liens.   

If you happen to be the source of those funds, then there may be an opportunity at this juncture. However, it may be easier to create a deal during the time prior to the issuance of a Demand Letter or between the issuance of the Demand Letter and the serving of a Statement of Claim.

3) The {pre}foreclosure lists you read about from the U.S.A. folks on BP are like unicorns in Canada.  Our privacy laws make the gathering and marketing of such lists {next to} impossible.

4) The lender incurs both a loss of revenue (interest income) & capital (principal) in addition to realising legal fees (attorneys and court applications); appraisal fees {an appraisal is required when applying to the court}; administrative fees, etc.  If they proceed through the foreclosure and take possession of the property, then they will incur holding costs, perhaps repair costs and sales costs (realtor fees).

5) If the mortgagor negotiates a quit claim to the lender, title transfers at that time. Otherwise the lender normally gets possession within 30-days of the end of the redemption period when the court orders a sale.

1(506) 471-4126

Hi @Roy N.

Somehow I missed your post to my message until I received a notification that you had answered another BP question by directing them to this post!

Thanks for the insightful information.

Yes, these foreclosure "lists" do seem non existent. However, I am wondering if it could be possible to get access (for a fee or a visit to the courthouse), to properties that have reached the "statement of claim" phase. The rational being that in the lawyer for the lender would more than likely visited the courthouse to make a formal application.

It's been a challenge in finding these deals, my thought right now is that mortgage brokers have first access as they could get calls from homeowners looking to refinance.

Otherwise, the other option is to do B2C marketing, so I can reach homeowners facing foreclosure directly.

On another matter, I do have a question related to the world of lending. I do know either the first or the second mortgage holder can start the foreclosure process. However, in the case where the first mortgage holder triggers the foreclosure process, Does the second mortgage holder step up and make the payments on the first mortgage?

Thanks,

Ram

Originally posted by @Ram Srinivasan :

Hi @Roy N.

On another matter, I do have a question related to the world of lending. I do know either the first or the second mortgage holder can start the foreclosure process. However, in the case where the first mortgage holder triggers the foreclosure process, Does the second mortgage holder step up and make the payments on the first mortgage?

Thanks,

Ram

 Ram:

Possible, but I'm not sure how easy it would be.   The borrower and first position lender would need to be agreeable to the second taking over payment of the first.  Depending on the equity position in the property, the borrower may be motivated.  Similarly - or rather conversely - for the primary lender.   

What is just as likely to occur is there will be insufficient equity in the property to satisfy both the primary and second mortgages and the second will get wiped out when the first position forecloses.

This is why I'm quite conservative when writing a second mortgage - the combined LTV needs to be

1(506) 471-4126

@Roy N.

Interesting, 70%. I have an example here, perhaps you can comment on. 

On a $50000K property, on a total LTV of 80%, say borrower stops making payments and goes under foreclosure for 6 months

There is $100K of equity. I subtract out real estate fees, 7/3, is about 19K, closing costs about 5K,  court costs 5K, interest costs for the first mortgage, about 8K

There appears to be approx 62K left in equity. Am I missing any other fees? Just looking to understand this risk of high equity loans better.

Thanks,

Ram

@Roy N. - Hey Roy, not sure if you saw my previous question on this forum, so tagging, just in case!

Ram

@Ram Srinivasan

I did miss your earlier response.

So you have a 1/2 million property with a 400K mortgage principal.  The real estate fees will likely be fixed or only 3-4% with an foreclosure (banks are notoriously stingy in this regard), so your 19K is likely close.   In addition to the court costs and interest, the lender may have levied additional administrative fees - these should not be very much.

The key will be at what value does the house appraise?  Is it still worth 500K in the current market - what are recent comps?

1(506) 471-4126

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