Tyne & Nicole Gardiner

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As full-time Canadian real estate investors, we are always on the lookout for good deals, while helping those in need.  With the recent economic downturn, a large market in foreclosures and power-of-sale properties have become  available  from those who have suffered the results of being unable to pay their mortgages.

 

Power of sale

With housing values deteriorating across Canada, the national unemployment rate inching skywards, and personal debt loads exceeding record levels, and personal bankruptcies high record, it’s not a surprise that foreclosure statistics are also increasing at a significant pace in Alberta, British Columbia and Ontario.

How many Canadians are Facing power of sales or Foreclosures?

While the exact number is unknown – unlike in the US, foreclosure statistics aren’t publicly available in Canada – many experts, including those at the Bank of Canada, believe that increasing foreclosures are a natural side effect of a poor economic climate such as this one. The fact many Canadian homeowners are holding mortgages greater than the value of their house – particularly those who obtained the now-defunct 40-year, zero-down mortgages – is only adding to this number.

 

How the power of sales or Foreclosure works in Canada?

So what should you do if you find yourself on the brink of foreclosure? Well, for starters, it’s helpful to recognize that, unlike in the U.S., you don’t have the option of mailing in your keys and walking away. In Canada, the mortgage debt is the homeowner’s – not the lender’s – and the lender can do whatever it takes to get that money from you, including garnish your wages. As a full-time Canadian real estate investor, you should be aware of the downsides to a loan or mortgage.

 

What is the difference between Power of sale and Judicial Sale in Canada?

Depending on the province you live in, lenders will likely go through a Power of Sale or Judicial Sale to recover any owed debt. The main difference is that the Judicial Sale process involves going through the court system, while the Power of Sale system allows the lender to sell the property without the involvement of the court.

 

What should I do,if I am facing power of sale or foreclosure in Canada?

The first thing you should do if you receive a letter from your bank or lender threatening Power of Sale or Judicial Sale proceedings is to contact your lender right away. If you’ve historically been making your mortgage payments on a regular basis and a rare occurrence – such as an illness, injury, or job loss – has forced you to miss a few, the lender may be motivated to work something out with you.

 

What happens If I put less than 20% Down payment to acquire my home?

If you had a down-payment of less than 20% of the value of the home when you purchased it, the lender is protected by mortgage default insurance. Canada’s three mortgage default insurers – Canada Mortgage and Housing Corporation, Genworth Financial Canada, and AIG United Guaranty – each have a type of ‘work out’ program that helps homeowners make their mortgage payments during difficult times, either by creating a temporary interest-only payment plan or forgiving a few mortgage payments.

 

Can I talk to my ex employer for help facing power of sale or foreclosure? 

If you don’t have a high-ratio mortgage, you could try talking to your employer’s human resources department. Many companies will find ways to help their employees stay in their homes, either by offering temporary loans or paying out remaining vacation pay.

Taking these steps might be enough to save you from foreclosure, thereby keeping your credit score from taking a nosedive. Full-time real estate investors should educate themselves on preventing foreclosures, since their knowledge may help out others who find themselves in over their heads.

 

What else can I do while facing power of sale or Foreclosure in Canada?

If other debt payments – such as credit card debt, car loans, or student loans – are preventing you from making your mortgage payments, you may be able to refinance your mortgage. In order to refinance, though, your total debts can’t be greater than 90% of your home’s value.

While you might have to pay a fee to break your mortgage, the benefit of refinancing is that it allows you to roll all your debts into your home at a lower interest rate. For instance, right now the rate on a typical five-year fixed mortgage is 4.5%. In most cases, your minimum monthly payments are drastically reduced, giving you increased cash flow.

 

What happen if I can NOT refinance my home while facing  power of sale or foreclosure?

If you can’t refinance, you might try contacting a debt settlement company. Unlike bankruptcy trustees, a debt settlement company will talk to your creditors and reduce your interest rates or debts owed without affecting your credit rating. Just make sure you choose a reputable firm rather than one that charges large upfront fees without really helping your situation at all.

 

What is my last resort while facing power of sale or Foreclosure in Canada?

If you’ve exercised every other possible option and you still can’t find a way to afford your mortgage payments, you might have to visit a bankruptcy trustee.

A bankruptcy trustee can draft a consumer proposal – a legal process that requires creditors to reduce or forgive certain debts – or assist you in filing for bankruptcy. A bankruptcy filing immediately stops legal action by creditors and, in return, clients must surrender the majority of their assets and split up the proceeds between creditors.

Depending on how many creditors you have, this tactic may allow you to stay in your house. A consumer proposal typically stays on your credit report for three years, while a bankruptcy usually sticks around for over six years.

 

What happens If I sell my Home before the Lender sells?

If all else fails, you might have to sell your home yourself. If you sell your home before the lender does, it will not be considered a Power of Sale or foreclosure and therefore will not be held against your credit score. You will, however, have to pay the lender back with the proceeds of the sale of the house.

 

What happens if I loose my home in power of sales or foreclosure in Canada?

If you do lose your house to Power of Sale and or foreclosure, it will stay on your credit report for six years.

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