Pro tip, house: If you want somebody to be inside of you, try not being so damn creepy.

Pro tip, houses: If you want somebody to be inside of you, try not being so damn creepy.

Congratulations, dirtbag. You’re officially the kind of person who doesn’t pay their debts, and the lender is after you to pay up or get out. People like you are what’s wrong with our country.

Sorry, that’s a little harsh. What I really meant to say is GOD YOU SHOULD PROBABLY OFF YOURSELF BEFORE YOUR EMBARRASSED CHILDREN DO IT FOR YOU.

Okay, actual serious voice now.

If you are like me and think Canada is in a massive real estate bubble, then we’re both of the opinion foreclosures are going to be increasing over the next few years. You read this here blogening, so you’ll probably be in good shape. But your friends don’t, mostly because WOULD IT KILL YOU TO FORWARD A G.D. LINK EVERY ONCE IN A WHILE.

If these friends go through foreclosure, they’re going to need somebody who actually knows the rules about the foreclosure process. By the end of this post, that will be you.

Note: This covers the foreclosure process in Alberta. It will be very similar in every other province except for that French-speaking bastion of poutine lovers. It’s only cheese and gravy people, relax.

The beginning

Let’s start at the beginning of the foreclosure process.

The common belief is you have to be three months behind before the bank will start to foreclose. This is not true. Banks will usually wait until you’re three months behind, but they don’t have to. If your payment is due on the first of the month, the lender can legally start the foreclosure process on the second of the month. Most lenders won’t, because that’s the mortgage equivalent of only lasting 3 minutes into foreplay. The only time this might happen is if you’re chronically late (and then catching up) and the lender has had enough of your crap.

Star Trek. And here you guys thought I was cool.

Star Trek. And here you guys thought I was cool.

There are other reasons besides lack of payment a lender can foreclose on yo’ ass. Part of every mortgage agreement states that you have to list the borrower as first loss payable on your fire insurance policy. If you don’t, you’re breaking your contract and the lender can foreclose. The same thing happens if you fail to pay your property taxes, the condo fees, or keep the place in a reasonable state of repair.

Borrowers will often say the foreclosure process came at a surprise to them. This is almost always a lie. It costs a lot of money to foreclose. The lender will make multiple attempts to fix the problem before taking the case to the courts.

Typical steps in the foreclosure process

Foreclosure is just a fancy word for getting sued because you haven’t lived up to your side in a mortgage contract. Thus, the process of getting foreclosed upon is pretty similar to getting sued for other reasons.

First, you’ll probably get a warning letter. This tells you you’re behind, what you owe, etc. This letter is the last step before the lender starts the foreclosure process. At this point, you can still salvage your situation with the lender by paying up, or at least making a plan to pay up.

Next, you’ll get served with the actual foreclosure lawsuit, either in person or by registered mail. You’ll get your day in court to prove that the allegations by the lender are false. Many borrowers don’t bother showing up, on account that they know they’re behind and there’s nothing they can do about it.

This is a giant mistake. If you don’t show up, it’s very easy for a lender to prove their case. They’re going to get everything they’re asking for. If you show up, you can at least try and beg the judge for a little more time in the house to prepare for moving. The judge is more likely to throw the borrower a bone if they actually show up.

There are all sorts of solutions that don’t kick you out of the house, at least for the time being. These include:

  • The lender might be interested in buying the place, especially if you still have some equity in the place. Private lenders are far more likely to do this over traditional banks.
  • They might let you stay in the house until they sell it, provided you do any maintenance and keep the utilities on. This can buy you some time, at least.
  • You can repay the arrears up to the day you have to physically leave the property. Just remember, once the foreclosure process starts, legal fees will make that arrears much bigger. Typically you have 3-6 months to do so.
  • You can also file a statement of defense which accuses the lender of wrongfully foreclosing. Don’t do this unless you have a legitimate reason.
  • You can also file a quit claim, the court equivalent of mailing the keys back to your lender along with a picture of your middle finger.

Many times, the lender is pissed at you and has no interest in keeping you in the property. If you stick with the ostrich head in the sand defense, eventually a bailiff will show up at your door with the legal right to physically haul you out.

Most foreclosures end with the court ordering a sale of the property. A real estate agent gets called in and lists the house on behalf of the court. Buyers get a few weeks to get their bids in and it’s the judge that decides which offer is the best. The cash is used to pay back the lender, with the borrower getting what’s left. The money used to pay the agent will come out of the borrower’s share.

What happens if there’s not enough left over?

Say a seller goes through foreclosure and there isn’t enough equity to fully pay the lender, who ends up $10,000 short. What can they do about it?

In Alberta, nothing. All mortgages are non-recourse loans, which means a lender can’t go after a borrower personally for any difference between what’s owing and what they ended up with. There are a few possible exceptions to this rule (ie. if the borrower signed a personal guarantee or a collateral mortgage), but these are certainly not normal. Work under the assumption that all mortgages in Alberta are non-recourse.

In all other Canadian provinces, mortgages are recourse loans. If the bank doesn’t collect all it owes from you during the foreclosure process, they can and will sue yo’ ass for the remaining money owed. They can then take steps like garnishing your pay or your bank account to get paid. Again, be proactive. Negotiate a payment plan with the lender so you don’t have to endure an awkward conversation with payroll about your wages being garnished.

And that’s it. If you have any questions about the foreclosure process, go ahead and type away in the comments section. Just keep in mind that free advice you get on the internet is worth what you pay. 

Tell everyone, yo!