Introduction to the Foreclosure Process
What is foreclosure?A foreclosure is a legal action taken by the lender (mortgagee) of a property against the owner (mortgagor). The Foreclosure allows the lender to take over ownership of the property after they attain the court’s approval. A Foreclosure can result in the owner losing their property and any equity they have in the property.
Property Owner: mortgagor
Equity: The amount the property value exceeds the mortgage loan amount and any other debts that other lenders have registered against the property.
How long does it take before the lender starts the Foreclosure process?Typically the foreclose process will not start until there are 2 or 3 months of missed mortgage payments.
STEP 1. The "Demand Letter"The first step in the process would be the lender sending the owner a demand letter called a “petition for foreclosure.”
As long as the property owner replies to the demand letter the lender is typically willing to work with the owner to make alternate payment arrangements if they were having some short term financial issues. The lender may allow the owner to make smaller payments for a set period of time and add the amount outstanding to the total amount of the mortgage. The lenders do their best to work with the owners as long as they stay in contact, are communicating and trying to get their finances in order.
This demand must be made on the Mortgagor before any Court proceedings can begin.
If the lender does not receive any reply or payments they will usually start the foreclosure process.
STEP 2. The "Petition for Foreclosure" beginsIf the mortgagor does not respond to the demand letter an action can be commenced in the Supreme Court of British Columbia by way of a "Petition" by the Mortgagee who then becomes the "Petitioner" in the action.
The “Respondents” to the Petition = the Mortgagor / property owner and any individuals or companies who have an "interest" (such as a mortgage, lien, or judgment) in the property which was registered in the Land Title Office after the Mortgagee registered its mortgage.
If you receive a Petition for Foreclosure?Get professional advice as soon as possible.
To take part in the court proceedings, you must file a Response to Petition at the court address shown on the petition and deliver 2 copies to the lender within 21 days. (with supporting affidavits explaining the nature of your defense and why you are claiming the Petition is either invalid or inaccurate)
After you file the Response, no one can take any steps in the foreclosure without notifying you and you will receive a document called a Notice of Hearing, which tells you when the lender will ask the judge for the Order Nisi to start the foreclosure.
If you don't file a response the foreclosure process will move ahead without your knowledge.
STEP 3. "Order Nisi" The initial order acquired in a foreclosure actionThe term "Nisi" has been defined as:
"A limiting term added to such terms as Decree, Order, or Rule to indicate that these are not absolute or final, but are to be valid or take effect unless some cause is shown, or reason arises, to prevent this."
At the Order Nisi stage the Court determines the amount due and owing to the Petitioner at the date of the Order Nisi and the per diem interest which accrues after that date. The Court will also set the “redemption period” which is the amount of time you will be able to redeem the property by paying the balance owing at the date of the Order Nisi which will include the interest accruing to the date of payment and the balance owing to the Petitioner for its Court awarded costs.
If the property is worth less than the amount owing under the mortgage the Court may decide to reduce the "usual" six-month redemption period to minimize further losses. The Court will usually order that Judgment be given against the respondent mortgagors or any guarantors in an amount equal to the amount which is due under the Mortgage (including costs) at the date of the Order Nisi.
The lender can also ask the court for the right to have their own real estate agent list your house for sale.
If there are other people or companies with a charge against your property they may also ask for the right to sell your property.
We recommended that you attend the court hearing at this stage to ask the judge for an extension on the redemption period for as much time as you need to get your mortgage paid up to date. You will want to explain your plan to get the money required to pay off the mortgage which may be from refinancing or selling the property on your own.We can help provide market information, an accurate evaluation of your home for possible refinancing with another lender or the time required to sell your home to pay of your mortgage balance.
Sometimes the lender will ask the court for a shorter redemption period such as 1 day Order Nisi. The court can make an order to sell your house at any time, including at the order nisi stage.
If you receive a usual “redemption period” of six months you have a couple of options that we can help with.
1. Find alternative financing to pay off the lender.
We work with mortgage specialists at major lending institutions and independent mortgage brokers that may be able to help you borrow from another lender or over a longer repayment period allowing you to pay off the lender and maybe even lower your monthly payments with a lower interest rate.
2. Sell the property and pay off the Lender.
We can walk through your property and provide you with a detailed market evaluation on the value and provide a net estimate based on a potential sale price minus real estate commission, payment of any outstanding property tax, the mortgage balance and any other charges registered against the title, including court costs. This will help determine if you owe more than the property's current value.
If the money from selling your property doesn’t completely pay off expenses, you will have to come up with the difference so you would want to minimize any further accruing expenses and work to get your property sold as soon as possible. However, if the sale price of your property pays off all your expenses you keep the profit. Depending on the shortfall you may be expecting you may want to agree to the foreclosure to minimize costs. However, you would only do this if the lender will provide you a full release from your mortgage. This means you won’t owe the lender any more money.
STEP 4. ORDER “NISI” to Order “ABSOLUTEAfter the redemption period, the court can give the lender a final order of Absolute.
When the redemption period has expired and the “Petitioner” has received a Certificate from the Court Registry stating that no monies have been paid into Court the Petitioner can make the application for the Order Nisi be made "Absolute".
When the Court grants the Order Absolute this results in "Foreclosing" which terminate all the interests of the Respondents in the property. The house then belongs to the lender.If the lender gets an order absolute, and registers title in its own name, it cannot make any further claims against the property owner. If the Lender sells the property but does not get enough money to pay off the mortgage, they do not have to pay the difference.
At this stage it is rare but the mortgagor can still apply to the court for relief from losing the property house if they can pay the mortgage balance in full.
The court could then order the lender to transfer the house back to the mortgagor.
If the Lender is granted an Order Absolute, the mortgagor will not owe the lender any money, but if anyone registered a debt against the property after the mortgage, they would still owe that money.
However, Lenders do not usually ask the court for an Order Absolute, instead they ask the court for an order to sell your house to pay off the loan as this will allow them to sue if the money from selling the property doesn’t completely pay off the mortgage loan.
The lender can still try to collect the difference from the mortgagor.
We have successfully represented both buyers and sellers at Court and have the experience to help you buy or sell a property in Foreclosure.
The main steps in a foreclosure proceeding
1. The Demand Letter
2. The Petition of Foreclosure Begins
3. The Application for Order Nisi (redemption period set)
4. Order "Nisi" to Order "Absolute"
The entire foreclosure process typically involves a period of 8 - 9 months.
This information not to be intended as legal advice.