In the past, the lenders usually obtained a court order permitting the foreclosure to get back their investments in the event of a borrower failing to repay the loan dues. Here it may be mentioned that a foreclosure is a legal procedure initiated by the mortgagee to repossess the amount he or she has let out as a mortgage loan when the borrower turned a defaulter. However, in the instance of a foreclosure, the lender needs to fulfill specific requirements stipulated by the law.
First, the lender's lawyer writes a modest letter to the borrower emphasizing as well as recommending that if the outstanding payments are not brought up-to-date within a stipulated period, he or she would face additional legal action and it may turn out to be a costly affair for the defaulter. While many lawyers do not make any effort to issue any warning letter to the defaulting borrower, in the event the borrower ignores the lawyer's letter and takes no step towards clearing the outstanding payments, the lender moves the sheriff's office and obtains an injunction regarding the foreclosure of the mortgage. The issue takes a serious turn once the sheriff's office issues summons regarding the foreclosure of the mortgage.
In the event when the lawyers do not issue any warning letter to the borrowers, they straight away send a foreclosure writ to the defaulter demanding hundreds of dollars as damages for the troubles faced by the lender owing to the non-payment of the dues. And if the borrower ignores the foreclosure writ or does not seek legal help to contest the lender's claims, the mortgagee is free to go ahead and obtain the title or ownership of the property against which the loan was granted. Once the lender takes over the title of the property, it would be deemed as the end of the dispute and there is no follow-up.
However, after the title of the property is taken over by the lender, several other impediments, like arranging the settlement of the petitioner's mortgage, needs to be fulfilled. It may be mentioned here that once the lender obtains the final foreclosure edict, the borrower is deprived of all the equity he or she had on the property. This aspect of foreclosure is definitely unpleasant for the borrower. On the other hand, it is also unfortunate for the mortgagee if the lender later sells off the property, but still does not get a price that covers the mortgage credit to the borrower.
In the event of the lender serving a foreclosure writ or injunction, the defaulting borrower is basically left with three alternatives to save his or her equity on their property. The best and easiest thing to do for the borrower is to clear all the arrears and bring the mortgage payments up-to-date within the time frame mentioned in the lender's lawyer's warning letter. In addition, the borrower is required to compensate the lender for his or her legal expenses and henceforth continue making regular and timely payments as mentioned in the mortgage agreement.
Alternatively, the borrower may make the arrear payments to the court and petition for the property being sold through the office of the sheriff. In this situation, the borrower may expect to get a better price for the property and may also get back some money if there is any surplus after having cleared the mortgage loan, paid the expenses involved with the sale of the property and settling the legal claims on the property, if any, of other parties. While adopting this method will help the borrower to retain the equity on the property till it is finally sold, any shortfall in repaying the mortgage loan may prompt the mortgagee to initiate legal action against the borrower.
The third and the last option before the borrower are to file a petition with the concerned authorities to buy back the property against which the loan was taken. If the borrower's request is granted, he or she would get a six month period to obtain the money required to settle the issue after taking over the account of the amount payable to the mortgagee. It has often been seen that it almost takes a couple of months to legally ascertain the 'taking of the account' or the exact amount the borrower owes the lender. In effect, such delays prove to be advantageous for the borrowers who now avail a period of around eight months instead of the six months stipulated by the rules.
Apart from the benefit of obtaining a mortgage property through the foreclosure method once in a while, generally the prolonged business of investing money in mortgages is not only boring, but often a nuisance for the lenders. This is particularly true in the case of the financial companies who are keener on the loan amount reimbursed by the borrowers. This aspect has made the process of obtaining a mortgage property through the issuance of notice under the power of sale more popular among the lenders, as they are able to take over the title of the defaulter's property more easily and promptly through this procedure.
When a lender issues a notice under the power of sale to the defaulting borrower, he or she need not wait for months to obtain the title of the mortgaged property. Instead, the issue is settled within a few weeks. After obtaining the title of the mortgaged property, the lender sells it off and after taking his dues and settling the legal claims of other parties on the property, if there are any, he returns the surplus money obtained from the sale to the borrower who has already lost all equity on the real estate.
In the even of the sale of the property not generating enough revenue to cover the outstanding mortgage payments to the lender as well as his legal expenses for issuing the power of sale notice, the lender is free to seek legal action against the borrower to recover the remaining dues.
Before we conclude, it needs to be mentioned that contrary to the six months period allowed to a defaulting borrower to buy back his or her property, presently the time period for the same has been lessened to just 60 days or around two months. This has certainly made matters worse for the defaulting mortgagors. It must also be noted here that the foreclosure rules are not same throughout Canada and may differ from one province to another.