Foreclosure Process in Canada: A Clear and Comprehensive Guide

Foreclosure on your home is a daunting prospect. It involves the possibility of losing your property due to failure to keep up with mortgage payments. Unfortunately, this is a reality for many Canadians every year.

One of the leading causes of foreclosure for homeowners is excessive mortgage debt. While taking out a mortgage to purchase a home is common practice, taking on too much debt in the process can lead to dire consequences. It’s important to be mindful of your financial situation and avoid taking on more debt than you can handle to prevent the risk of foreclosure.

Does Foreclosure Mean You’ll Lose Your Home?

Foreclosure does not always mean that you will lose your home. Your financial situation, willingness to work with the lender, and whether or not you choose to defend your home against foreclosure, all play a role in the outcome. If you do not take any action, you can expect to face foreclosure and lose your home. However, if you are proactive and work with your lender to find a resolution, you may be able to keep your home. It is important to understand the foreclosure process and seek legal advice if necessary to properly defend your home.

When Does Foreclosure On Homes Happen?

If you miss one mortgage payment, it won’t necessarily lead to foreclosure right away. Typically, you would have to miss at least a couple of payments before your lender starts the foreclosure process. However, if defaulting on your mortgage payments starts to become a habit, your lender may have no choice but to start the process of taking back possession of your home.

What Should You Do If You Missed A Mortgage Payment?

As a homeowner, your best bet is to get in touch with your lender right away after having missed even just one mortgage payment to explain why it was missed. Your lender will be more willing to work with you to rectify the situation that way. They may help you get your payment schedule back on track rather than going through the foreclosure process.

If the missed payments are simply the result of temporary financial problems, you might be able to avoid foreclosure and ask for specific concessions to be made on your mortgage payment schedule. However, if you don’t contact your lender about your missed payments, you could wind up with a written notice from your bank warning you that the foreclosure process will potentially start soon.

That’s what you need to know about loan default.

Foreclosure on Homes vs. Power of Sale

When it comes to the process of selling a home due to defaulted mortgage payments, there are two primary options: foreclosure and power of sale. The key difference between these two options is that foreclosure requires the use of the court system, while the power of sale does not. As a result, power of sale is typically a much faster process, often completed within a few short weeks. In contrast, foreclosure can be a painfully long process, often taking months or even up to a year to reach a resolution.

Foreclosure On Homes: How Does It Work In Canada?

Foreclosure on Homes More Common in BC, Alberta, Manitoba, Saskatchewan, Quebec, and Nova Scotia

Foreclosure can happen to homeowners across Canada, but it is more common in certain provinces such as BC, Alberta, Manitoba, Saskatchewan, Quebec, and Nova Scotia. Lenders can begin the foreclosure process as soon as you miss a mortgage payment, but they usually wait until you have missed several payments before starting the process. It is in the lender’s best interest to work with you to find a suitable substitute payment plan to get your mortgage payments back on track and avoid foreclosure altogether.

If you live outside of Ontario, Newfoundland, New Brunswick, and PEI, and your lender cannot go through Power of Sale, you risk facing foreclosure right from the beginning. The foreclosure process starts with the lender filing a ‘Statement of Claim’ document with the court and serving you a copy.

Respond To Plaintiff

After receiving the ‘Statement of Claim’ document, you have 20 days to file your reply in the form of a ‘Statement of Defence’ or a ‘Demand for Notice.’ If you fail to reply, the lender can inform the court that you are in default regarding the court action (not to be confused with being ‘in default’ with your mortgage).

Failing to reply will communicate to the court that you have chosen not to fight the foreclosure process. At this point, you have no other avenues to take to defend yourself. Your lender will eventually apply for a remedy with the court as a means of getting back the money they loaned out to you to finance your home.

Redemption Order

The court will likely issue a ‘Redemption Order’ at this point, giving you a certain amount of time to bring your mortgage up to date or pay it off entirely. If you can come up with enough money, you can effectively stop the foreclosure process at this point.

Order Of Foreclosure – However, if the court has reason to believe that you do not have the funds, it can go straight to issuing an ‘Order for Foreclosure’ without even bothering with a Redemption Order. In this case, the property will be directly transferred to the lender.
Order Of Sale – The court may also decide on an ‘Order of Sale’ instead, which involves a sale of the home under the court’s control. You will then have a maximum of 30 days to vacate the home after the lender (or a new buyer) takes possession.

Power of Sale More Common in Ontario, Newfoundland, New Brunswick, and PEI Before Foreclosure Process

If you are facing foreclosure in Ontario, Newfoundland, New Brunswick, or PEI, your lender may choose to go the Power of Sale route instead of the judicial process. This can be a quicker process and may lead to a resolution between you and your lender during foreclosure.

Redemption Period

Before starting the Power of Sale process, you will receive a written notice and a 35-day “redemption period”. This period gives you the opportunity to pay back all the arrears you owe and get back in good standing with your mortgage lender. However, you will need to pay back the mortgage payments that you missed and any extra penalty fees associated with a Power of Sale.

Statement of Defence

If you do not take advantage of the redemption period to get your payments back on track, you will then be served with a Statement of Claim for Debt and Possession from your lender. At this point, you will have 20 days to file a Statement of Defence. If you fail to file a statement within that time frame, you will be at increased risk of getting kicked out of your home when a Writ of Possession is obtained by your lender from the court and filed appropriately.

Once the lender obtains the Writ of Possession, they can sell your home with the help of a real estate agent. The proceeds of the sale will be put towards covering any fees, and any leftover money will be returned to you. However, if there is not enough money to cover all dues, you could find yourself being sued for the remaining balance by your lender.

If you are facing foreclosure, it is important to understand the Power of Sale process and the redemption period. By taking advantage of the redemption period, you may be able to get back in good standing with your mortgage lender and avoid losing your home.

When Do Missed Payments Lead To Foreclosure On Homes?

If you miss a mortgage payment, it can be a cause for concern. You may be wondering how long you have before the lender starts the foreclosure process. Generally, lenders will let 3 to 6 months of missed payments go before opting for foreclosure. However, this can vary depending on the lender’s policies and the specific circumstances of the borrower.

It’s important to note that lenders will attempt all other means of resolving the issue before opting for foreclosure. This includes offering loan modifications, repayment plans, or forbearance agreements. These options can help homeowners get back on track with their payments and avoid foreclosure.

If you’re struggling to make your mortgage payments, it’s essential to communicate with your lender as soon as possible. They may be able to work with you to find a solution that works for both parties.

What Can You Do To Avoid Foreclosure On Homes?

If you are struggling to keep up with your mortgage payments, there are steps you can take to avoid foreclosure and protect your home and credit. Here are some things you can do:

Understand the terms of your mortgage before taking one out. Make sure you can afford the monthly payments and understand the consequences of missing payments.
Speak with your lender as soon as you start having trouble making payments. They may be able to offer you a repayment plan or loan modification.
Consult with a low or no-cost housing counselor. They can provide you with information and resources to help you navigate the foreclosure process.
Contact a real estate lawyer for legal advice and representation.
Find out if you are eligible for any home loan modifications that can lower your monthly payments.
Consider selling your home and downsizing before missing a payment.

Remember, the best way to avoid foreclosure is to purchase a home that is within your financial means. Avoid these 5 mortgage mistakes:

Taking on a mortgage that you cannot afford
Failing to shop around for the best mortgage rate
Ignoring the terms and conditions of your mortgage
Not saving for unexpected expenses and emergencies
Taking on too much debt in addition to your mortgage payments.

By following these tips and avoiding common mortgage mistakes, you can take control of your finances and avoid the stress and consequences of foreclosure.

Reasons Canadians Are Foreclosing On Their Homes

As a Canadian homeowner, you may be struggling to keep up with your monthly bills, including your mortgage. One reason for this is the growing household debt in Canada. With interest rates on the rise, inflation increasing, and housing demand going up, the amount of debt being held by the average homeowner is also increasing. This leads to a higher likelihood of defaulting on payments, which can ultimately result in foreclosure on your home.

The Bottom Line

If you’re struggling to keep up with your mortgage payments, it’s important to take action before you face foreclosure. Losing your home can have a significant impact on your finances and credit rating. Consider speaking with your lender or a financial advisor to explore your options and find the best solution for your situation. Taking action early can help you avoid the emotional and financial devastation of foreclosure.

Foreclosure On Homes FAQs

If you’re looking to purchase a foreclosed property, you can find them listed on the MLS or through Centris. But if you’re a homeowner facing foreclosure, it’s crucial to understand how to avoid it. Most lenders will allow three missed payments before considering foreclosure. However, it’s best to communicate with your lender if you’re struggling to make payments. Many lenders may be willing to defer payments to help you regain control of your finances and avoid foreclosure.

If you’re already facing foreclosure, it’s possible to stop it. One option is to work with your lender to modify your loan terms or create a repayment plan. Another option is to sell your home before the foreclosure process is complete. Keep in mind that a foreclosure can negatively impact your credit for 7-10 years, making it harder to qualify for credit in the future.

Frequently Asked Questions

What Can You Legally Take From Your Foreclosed Home?

If your home has been foreclosed, you are not allowed to take anything that is considered part of the property. This includes fixtures like light fixtures, built-in appliances, plumbing fixtures, and more. However, you are allowed to take personal property like furniture, clothing, and other belongings.

What Is the Timeline for Foreclosure in Canada?

The timeline for foreclosure in Canada can vary depending on the province or territory. In general, the process can take anywhere from 6 months to 2 years. The foreclosure process typically starts when a homeowner misses a mortgage payment, and the lender sends a notice of default.

How Do Bank Foreclosures Work in Canada?

When a homeowner misses a mortgage payment, the lender can start the foreclosure process. This typically involves sending a notice of default to the homeowner. If the homeowner does not bring the mortgage payments up to date, the lender can then take legal action to seize the property.

How Many Missed Mortgage Payments Before Foreclosure in Canada?

The number of missed mortgage payments before foreclosure in Canada can vary depending on the lender and the province or territory. In general, lenders will start the foreclosure process after 3 missed mortgage payments. However, some lenders may be more lenient and give homeowners more time to catch up on their payments.

Do You Get Any Money If Your House Is Foreclosed in Canada?

If your house is foreclosed in Canada, you may be entitled to some of the proceeds from the sale of the property. However, this will depend on the amount of equity you have in the property and the terms of your mortgage agreement.

Can a Bank Foreclose During COVID Canada?

Yes, banks can foreclose during COVID in Canada. However, many lenders are offering mortgage payment deferrals and other assistance programs to help homeowners who are struggling to make their mortgage payments due to the pandemic. It is important to contact your lender if you are having trouble making your mortgage payments.

Featured Photo by Raphael Loquellano from Pexels