The biggest check that most people write each month is the payment on their home mortgage. When financial crises hit, it can be hard to make that payment each month – which means that a borrower can enter default within a month or two of losing a job, going through a costly divorce or developing a costly medical condition. It only takes one missed payment to start the default proceedings, depending on the lender, and if that process has gotten underway for you, it’s time to talk to a real estate attorney about your rights. This article details the two ways that Canadian lenders can take back a home that has gone into default – foreclosure and power of sale. HOS Financial has remedies for you in both cases, even if the march through the court system has already started.
How does foreclosure work?
The foreclosure process has to do with a judge issuing an order that transfers the ownership of your house (as the defaulted borrower) to the lender. At that point, you’re off the hook for the debt. The foreclosure goes on your credit report, but you no longer owe anything to the bank. Here are some key elements of the process:
- The lender is not required to enter into negotiations with possible buyers – which is a big difference in comparison to a power of sale. The lender assumes the risk of having the sale price come in less than the owed balance.
- Because the lender owns the property now, the lender can sell the property as quickly as the lender chooses to do so – at any price. The borrower’s debt is paid in full either way.
- If the sale of the house brings in more than what the borrower owed on the balance of the loan (including fees), the lender gets to keep those profits.
What is a power of sale?
When you go through “power of sale,” you still end up losing your house, but the process of transferring the ownership is different. You hold on to the title until the house actually sells, and at that point it goes directly to the buyer, so the bank never owns the house. However, unlike the foreclosure process, the sale process doesn’t necessarily end your obligation to the bank, because if you don’t sell the house for enough to cover the balance due with fees, you still owe the difference. Here are some keys to the power of sale process:
- If the home sells for more than the balance due (including fees), the borrower gets the difference. If there is still a balance due, though, the borrower has to make good on the difference.
- The bank never shows up as the owner on the title. The property ownership goes right from the borrower to the purchaser of the home.
- In many cases, you get to use a realtor (or even have to use one). This is good for the borrower, because it makes a higher sale price more likely.
- If the borrower feels like the process has been unfair – with regard to the commission of the sale – he or she can ask for an audit of the process.
- Did the mortgage have PMI? If so, the insurer can go after the borrower if the lender files a claim on that insurance policy.
Are you in the default process right now?
The HOS Financial rent to own program can help you avoid both of these processes. Remember that even after the legal process has begun, you can redeem the property by paying off the balance due with fees. So if you sell HOS Financial your house, and start a lease purchase contract, you get to stay in your house – and you don’t have a foreclosure or power of sale on your credit report. You start paying monthly rent, but some of that goes toward a credit for your eventual down payment. At the end of the lease term, you start over with a new loan – and start building equity once again. This ends up being much better for your credit – and much less disruptive for your family. If default is a possibility for you, and you’re in the Niagara Region of Ontario, get in touch with us today!