Are YOU Being Foreclosed on in Alberta, Canada?
Explanation of the Residential Foreclosure Process in Alberta, Canada
In these trying times, with the number of families suffering severe economic hardship, during the Covid-19 crisis, the reality of residential foreclosure looms. This is an explanation of the foreclosure process on residential properties in Alberta Canada.
Demand Letter
If you are in default of your mortgage, the mortgage lender will usually send a Demand Letter to you by ordinary mail or sometimes the Demand will be served upon you by more formal means.
Depending on the economic climate, and your lender’s relationship with you, the mortgage lender may allow one or two monthly mortgage payments to go into arrears before the mortgage lender takes this step of serving a Demand Letter.
The mortgage lender may take this step of demanding payment for other reasons unrelated to the payment of the mortgage, such as if the condominium fees are not paid, or if the property taxes are not paid, or if there is some other matter relating to the property which the mortgage lender considers will result in there being a default under the mortgage.
In certain circumstances the mortgage lender may also consider that there was something improper as a result of the original mortgaging in which event the mortgage lender may decide to call the mortgage due and demand payment in full.
Usually the Demand Letter will not demand the full payment of the mortgage. In the usual case the Demand Letter will only demand payment of the arrears.
If the Demand is not paid within a reasonable time (sometimes 10 days), the mortgage lender will contact a lawyer, and the lawyer will be instructed to commence foreclosure proceedings to enforce the mortgage security, to recover payment of the entire indebtedness.
Foreclosure Proceedings
If the Demand Letter does not result in payment of the mortgage debt that is due, the mortgage lender will retain a lawyer to commence “foreclosure” proceedings, in the general sense; that is, the mortgage lenders shall commence a lawsuit (an Action) at Court.
Generally the lawyer will start a legal Action at Court within 7 days of such instructions. Once this happens the legal Action is noted on your Credit Bureau record.
The mortgage lender’s lawyer will issue a Statement of Claim, which is a Court document seeking a declaration of the indebtedness, a declaration that the mortgage is valid and enforceable, and the mortgage lender will seek a direction from the Court as to how the mortgage lender will be permitted to recover payment of the debt, usually by judicial sale or by “foreclosure” of the mortgage property.
Difference between a “Judicial Sale” and “Foreclosure”
There is a difference between the concept of a “judicial sale” and that of a “foreclosure”, although these both may arise out of “foreclosure proceedings”.
A “Judicial Sale” is when the property is sold at a declared price by Order of the Court and this usually results in some part of the mortgage debt remaining unpaid and the borrower remains liable to pay this remaining debt.
A “Foreclosure” is when the mortgage lender actually obtains title to the property by an order of a declaration of foreclosure by the Court and by which the indebtedness is extinguished, and the mortgagor does not recover anything further from the property or from the borrower.
Deficiency Judgment
If the property is sold by judicial sale, normally there is a shortfall between the mortgage debt and the value of the property. Such a shortfall is referred to as a “Deficiency”, and the mortgage lender is, in most events, able to obtain a “Deficiency Judgment” for such differential. That situation means that not only will the owner lose the property, but the owner is also personally liable to pay an additional sum of money being this “deficiency”.
Steps can be taken at a later date by the mortgage lender to recover that deficiency, by the sale of other assets of the owner or by garnishee proceedings against the owner’s income.
In certain cases there is, in fact, a surplus after the property is sold by judicial sale. In that event, any surplus shall be returned to the owner of the property, unless there are subsequent encumbrances, or other people who have claims against the property, or who have judgments against the owner, in which event the surplus proceeds are paid to these other parties.
This will need to be discussed in greater detail if there is a possibility of this occurring.
The Process of the Foreclosure Proceedings
A. Mortgagor Filing a reply to the Statement of Claim
Once you are served with the Statement of Claim, you will have 20 days to file a reply, such as a Statement of Defence or a Demand of Notice at Court, and to serve this reply upon the mortgage lender’s lawyer. You will file a Statement of Defence if you can defend the claim; you can deny the indebtedness, or you can deny the right of the Bank to enforce the security on this property at this time.
If you retain a lawyer, the lawyer will communicate with the lawyer for the mortgage lender, and the time for filing a reply will be extended.
B. “Service” of Court Documents
Usually the service address of court documents upon you should be where you reside or do business, or it could be a lawyer’s office.
You may notify counsel for the mortgage lender that service may be by Fax or by Email, however, as a matter of prudence, unless each of you with certainty check such electronic processes daily and these are fail-proof (and always check “junk”), the best approach is to seek a “hard copy” delivery of all documents to your residential address. Also, if your mailbox (Canada Post) is not checked daily (especially if it is a PO Box, or is a remote mail box), service in that manner may be problematic.
Once foreclosure (or any legal proceedings) are commenced against you, you need to be diligent in checking for service upon you of court documents.
C. Application to Court
Following the filing of the Defence or the Demand of Notice being filed, or in the absence of a Statement of Defence or Demand of Notice in time, the mortgage lender will instruct the lawyer to file and serve an Application to go to Court to obtain a Court Order. The Order that may be obtained by the mortgage lender will depend upon the circumstances. This would include:
(a) An Order for Sale to the Mortgage Lender. If there is little value (referred to his/her equity) in excess of the mortgage debt, then in the normal case the lender will ask for a direct Order for Sale giving title to the mortgage lender at a price (this is called a “Rice Order”).
The lender may, instead, ask for an Order for Foreclosure which completely ends the matter. This means that the matter will proceed quite quickly following the Statement of Claim, if there is no equity.
(b) A Redemption Order, with directions for a judicial real estate listing. The lender may ask for a Judicial Listing of the property for sale by a realtor.
D. Affidavit of Value
There will be an Affidavit of Value filed by the lender containing an appraisal obtained by the lender’s appraiser.
E. Appraised Value
Your house will be appraised by an appraiser appointed by the mortgage lender’s lawyer. It is important for you to co-operate with such appraiser. If you do not co-operate, the appraiser will simply do a “drive by” appraisal, and will discount the value of your home. That being the case, the Court will be presented with a lower value for your home, which may result in a higher Deficiency Judgment against you, or a shorter redemption period.
Accordingly, if you are contacted by an appraiser, you should make arrangements to permit the appraiser to view the home. You should also try to make the home as presentable as possible in order to have the highest value.
Once you are aware that the mortgage lender has sent an appraiser for the property, you will need to review that appraisal carefully, and determine from your own perspective whether it is accurate.
You should check the MLS listings in the neighbourhood to compare sales in the neighbourhood, and you may wish to contact another appraiser for a second opinion.
F. Affidavit of Default
There will be an Affidavit of Default setting out the mortgage and the mortgage debt and the arrears, and the fact that there has been a default.
G. Redemption Period
If there is equity in the property beyond the mortgage debt, then the Court gives the borrower some time to “redeem”. That is, the Court gives you an opportunity for you to bring the mortgage back into current status.
If you dispute the amount of the mortgage debt, or if you believe the value is higher, you must oppose the Application and file your own evidence as to the debt and obtain and file your own Appraisal.
The length of time (the Redemption Period) that the Court permits will depend upon the amount of equity in the property.
If there is significant equity, the Court will permit 6 months.
H. Time to Redeem
The redemption period is a time during which the mortgage lender is not able to carry on further foreclosure proceedings and the foreclosure matter is at a “standstill”. During the redemption period you are able to obtain re-financing, or you may list the property for sale and, in any event, you are able to continue to be in possession and control of the property.
I. Judicial Listing
Upon the expiry of the redemption period, the property will then be listed for judicial sale (unless there is no equity in the property, in which case the mortgage lender will again go back to Court and try to obtain an Order directing the sale of the property to the Plaintiff or will ask for an Order for Foreclosure without the need for a further sale process).
Normally the judicial listing is with a realtor selected by the Bank, who will list the property at the appraised market value of the property. This will be for a 90 day listing. Sometimes the owner may be successful in arguing for a higher list price or to argue for a different realtor.
If, during the 90 day listing, there is an offer (this may occur as often as the first day of the judicial listing) then the mortgage lender will instruct its lawyer to go back to Court to accept that offer, if it is a fair offer having regard to the value of that property. At that time, the mortgage lender’s lawyer would file an Affidavit from the realtor explaining the steps taken to market the property.
The mortgage lender will file an Affidavit attaching the offer, and the mortgage lender’s lawyer may explain other circumstances regarding the marketing.
If the offer is close to the appraised market value, the Court will accept that offer and you or the Tenants will have 30 days to vacate.
J. Rents
If the property is rented, the Tenants still have to make payments to you, and you should collect the rents. Sometimes the mortgage lender will instruct the Tenants to pay the mortgage lender. If that happens, you should confirm that the Tenants are in fact paying the mortgage lender or its lawyer each month.
K. Insurance and Utilities
You remain responsible for the property. Because you have this obligation, you should maintain insurance on the property, and you should maintain at least the minimum utilities.
If you cannot, or do not, you should notify the Bank right away and the Bank will likely take steps to do the same.
L. Mortgage Lenders’ Legal Costs
You should be aware that the mortgage lender has the right to add all its lawyer’s fees and costs (including costs of appraisals, process servers, property managers etc.) to the mortgage debt.
These lawyers are expensive, and have hourly charges for their assistants as well.
In a normal foreclosure, these fees will range between $6,000.00 and $10,000.00.
As such, you should try not to create reasons for the mortgage lender’s lawyer to have to do more work.
**Each time you call them you are being charged $500 an hour or so. Be careful in this regard.
M. Your Legal Costs
You should be aware that if you retain a lawyer to assist you, your lawyer will also charge you legal costs and that lawyer’s legal costs will also be at $650 per hour plus other charges.
It is worth repeating to you: you can minimize your own legal fees if you prepare for your meeting with your lawyer. Type out, in an email, everything you know about the situation.
Provide all papers relating to the property to the lawyer, in an organized way. Explain your concerns in an email. Ask your questions in an email.
What you can do with the property while in “Foreclosure Proceedings”?
Up to and including the date that the Court accepts an offer on the property, or until title is transferred to the mortgage lender, you are able to “redeem”.
Redeem means that you are able to bring the mortgage current by paying the arrears if it has not “matured” and has not come fully due. You may, if the mortgage has come to the end of its term (matured), pay out the mortgage in full.
Otherwise, you may yourself try to sell the property and obtain proceeds sufficient to payout the mortgage. The difficulty that you may have in your own attempt to sell is if there are encumbrances on the property behind the mortgage being foreclosed on; in such case this situation will cause difficulties for you, since without dealing with these other claims and charges you cannot sell. If that is your situation, we need to discuss this in greater detail.
Ending the Foreclosure — Bring the mortgage current!
As the owner of the property, you have the right to pay all of the arrears under the mortgage, and bring the mortgage current, at any time before the Court grants the Order for judicial sale, selling the property, or if there is an Order for Foreclosure vesting title in the property, the Plaintiff, or some other party.
If the mortgage has come fully due at the expiry of its term, such that the entire principal amount has become owing (and not simply accelerated because of the foreclosure proceedings), then in order to end the foreclosure and to keep the property, you must pay out the full mortgage debt. This only occurs if the mortgage is fully matured such that the full principal amount has come due and the mortgage lender will not renew.
You may ask the mortgage lender to renew, which the mortgage lender may consider if the mortgage is brought current by payment of the arrears.
In foreclosure proceedings, the Court tries to protect the interests of the owner being foreclosed upon. If you satisfy the Court that you have reasonable prospects of being able to bring the mortgage current, if the Court will give you time, the Court will consider a proposal from you to bring the payments current over time. The usual timeline that the Court considers to be “reasonable” is 6 months. However, each case has its own circumstances.
Even if you believe that it will take longer to bring the mortgage current than 6 months, and providing that you can make current mortgage payments, you may wish to initiate a proposal. If significant payments are made towards the arrears, even then, at the expiry of a reasonable period, the Court may consider giving you more time.
If you wish to make a proposal in this regard, you need to provide some information regarding your background, your circumstances, and that you will need to make an initial payment on the arrears, as well as current payments. The Court will not allow the mortgage to go further in arrears in those circumstances.
You may consider making this proposal towards the end of the redemption period (even if the Court has already granted an Order directing the sale of the property). You may bring an Application to the Court and advise the Court that your circumstances have changed, and that you would like to try and bring the mortgage current. The Court will consider it and review all of the circumstances.
What to do if you believe the Bank’s appraisal is to low?
If you believe that the Bank’s appraisal is too low, then you should obtain your own appraisal of the property. This will cost approximately $500.00.
You should also obtain a comparative market analysis (CMA) from a realtor, and ask the realtor their opinion on the value of the property and the length of time to sell the property at that value.
Please note that the Court does not rely on the CMA alone, and will require an appraisal to substantiate the value. However, it is useful to have both sources of information regarding the property, since the CMA will sometime convince the Court.
What to do if you believe the realtor has not properly marketed the property for sale?
In many foreclosures, where the property is listed for sale, but at the expiry of the listing has not been a reasonable offer, the mortgage lender’s lawyer will bring Application to Court for one of two directions from the Court:
To reduce the list price to a much lower price in order to induce a sale; and
To seek an immediate sale of the property to the Plaintiff at some reduced price.
In these circumstances, there are many reasons why the realtor may not have achieved the sale of the property. The reasons may include:
That the list price may be too high. In other words, the appraiser has mistaken the market value of this property;
That the realtor has not been performing. If you believe that the realtor has not been performing, then you should file an Affidavit, advising the Court.
Anything that you can advise the Court with respect to how you believe the realtor has not conducted the listing property will be of assistance to the Court. If you are able to convince the Court that the realtor has not marketed the property reasonably, the Court may either extend the listing further at the same price, or the Court may replace the judicial realtor. If you wish to replace the judicial realtor, you should present to the Court the names of realtors who you believe would properly market the property.
If you wish to persuade the Court that the property should be listed at a higher price, you must advise the Court that you have fully co-operated with the realtor and that the premises are in proper condition to “show” to perspective purchasers. Any doubt presented to the Court regarding your co-operation will work against you.
Summary
If you are in default, you may expect a Demand Letter, after which the Bank will usually wait a further 10–30 days. You may then expect a Statement of Claim, in which you will have 20 days from service of the Statement of Claim to file a Defence and a Demand of Notice.
Shortly after that you will receive documents with respect to the initial Court application, which will take approximately 14 days to serve upon you.
During this time, you would be able to have an opportunity to obtain an appraisal of the property yourself, if you wish to file an appraisal to contest the value that the Bank has placed on the property through its appraiser. If there is equity (although this may be as short as 1 day) you will be given time to pay.
Following the expiry of redemption period, you will then have a 90 day judicial listing. Frequently an offer will be received soon after listing, well before the expiry of the listing.
If the offer is close to the appraised value, the mortgage lender lawyer will go to Court to accept the offer to purchase. If, at the expiry of the 90 days for Judicial Listing, there have been no offers on the property, in the normal course the Bank will attend at Court with new evidence explaining that the list price should be reduced, and that the property will then again be listed for 90 days at a lower price.
In order for the Court to do anything, other than simply the re-listing of the property for sale (such as to drop the list price or to foreclose), there must be evidence of the value of the property which shows that there is no equity in the property for you.
During the foreclosure process you are not required to make mortgage payments, although interest and other charges will continue to accrue and be added to the mortgage.
Once the Court makes an Order for Sale of the property or an Order for Foreclosure, then the foreclosure proceedings will come to an end and you or your Tenant will have 30 days to vacate the property.
If you do not hire a Lawyer, what should you do?
Upon the Demand Letter being received, send a reply letter asking for a Mortgage Statement and Mortgage History.
Once you receive the Statement of Claim, before the 20 days expires you must file a Statement of Defence to ensure that the mortgage lender’s lawyer’s knows how to contact you. You may consider denying the indebtedness amount (this needs to be confirmed because it may be wrong in the Statement of Claim), and you may deny that the mortgage lender is at risk. You may have other defences especially if you are no longer the owner. If that is the case you need to see a lawyer. If you avoid service generally all you do is increase the costs that will be added to the Mortgage debt.
Attend Court on any application: If you need time to consider what to do (or need a lawyer) on any application, ask the Court for a 2 week adjournment.
If you think that mortgage lender’s appraisal is low, ask the Court for an adjournment, and then do two things: First get your own appraisal and file that at Court. Second, contact a realtor and obtain a Comparative Market Analysis, and file that at Court by an Affidavit explaining what you believe the property may be worth.
If you want to try to keep the property, you will need to make a proposal to the Court, containing a reasonable timeline to pay the arrears. Usually the Court will allow payments over 6 months.
If you want to keep the property, file an Affidavit explaining why the payments were not made, and how you think that you can pay the arrears over a reasonable time.
If you are giving up the property, you need to ask the Court to consider your circumstances, such as that your children are in school, or advise of the date when your new housing will be available.
If a money Judgment is granted against you, see a lawyer.