Who is responsible for property taxes on a foreclosure? The answer is, it depends. For homeowners who would like to keep their homes (by “redeeming” the mortgage during the 6 month redemption period) they must pay property taxes as well as any interest and costs as well as the balance of the loan. In that case, the answer is simple — the homeowner is responsible.
If the homeowner is not able to redeem the mortgage, the answer can get somewhat complex. (For this reason, please check things over with your attorney before making any decisions — we are not lawyers and this is not legal advice.) There are two possible endings to a foreclosure: an “order absolute” and a lawsuit.
After the “redemption period” (the period when the homeowner can pay off outstanding debts and keep the house) ends, the court may issue an order absolute. In this case, the ownership of the house is transferred to the lender and the homeowner must leave. At the same time, the homeowner no longer owes any money to the lender — the lender is responsible for covering all costs, generally through the sale of the house.
On the other hand, most lenders do not ask the courts for “orders absolute.” Rather, they commence a lawsuit at the same time as they start foreclosure proceedings. The purpose of this lawsuit is to give them a way of collecting any outstanding costs if the sale of the house does not pay off the loan balance (including any costs, such as taxes). This is the most common scenario, and can therefore end with the homeowner still having to pay the lender after foreclosure is done.
Buying a Foreclosure – property taxes
In some situations, the foreclosure buyer may end up having to pay the property taxes, especially for properties in the US rather than Canada. Smart foreclosure buyers will therefore perform a title search to turn up any additional liens (such as back taxes) or debts against the property — this goes a long way to avoiding unpleasant surprises.
Where Does This Apply?
Foreclosures (i.e judicial foreclosures, involving a court from the beginning) are mainly used in Saskatchewan, Nova Scotia, Quebec, Manitoba, British Columbia, and Alberta. Since foreclosures can take 6-10 months and are a “no win” process in which both the lender and the homeowner usually lose out, many mortgages in Canada include a Power of Sale clause.
The Power of Sale clause allows the lender to take possession of the house by notifying a third party trustee (who holds legal title while the mortgage is in effect). This trustee acts in lieu of a court, at least in the early stages of the process, and makes it possible for the whole process to proceed at a rapid pace. Power of Sales often last for a period measured in weeks, rather than years, and homeowners usually only have 35 days to pay off the balance rather than 6 months.
Power of Sale in Canada was originally introduced in Ontario by lenders who were dissatisfied with the delays involved in foreclosure. After they became commonplace in Ontario mortgage contracts, eventually Power of Sale was incorporated into the law there, and the practice spread to other provinces. Besides Ontario, if your house is located in Prince Edward Island, New Brunswick, or Newfoundland and Labrador, the mortgage probably includes provisions for Power of Sale.
