Foreclosures in Canada work differently from places like the United States of America or any other country that allows the owner to hand over the property to the lender. Instead, the lender does not take responsibility for resolving the debt because the money owed is what is being sought, not the property. When faced with foreclosure; if selling is the only option then, 2 methods of sale are possible:
1) Power of Sale and
2) Judicial Sale
There is one distinction between the two. A “Power of Sale” is an arrangement in which the owner is allowed to sell the property to clear the amount owed without the courts. In this case the lender allows settlement of debt without the judicial system’s involvement while in the case of a “Judicial Sale” the lender goes through the court to sell the property in order to recover the money owed instead of allowing the home owner to sell privately and settle the debt. The chosen method differs based on your province.
Options to avoid foreclosure
Before a property is foreclosed the owners are allowed numerous avenues through which they can go in an attempt to avoid losing their property. These include:
2) Refinancing your mortgage: in the event that other debts are prohibiting the payment of your mortgage then refinancing may be an option as long as your total debts do not exceed 90 percent of the value of your property. In most cases a fee may be required when breaking you mortgage but the overall benefit is worth it. One option is to have all your debts rolled into your home which could result in lower interests rates (in some cases as low as 4.5%) and drastically cut monthly payments which can help to ease monetary demands each month.
3) Debt Settlement: where refinancing is not an option owners can attempt debt settlement (preferably through a reputable firm). Debt settlers can liaise with your creditor to reduce you debt or interest rates hence making payments easier.
4) Employer (or former employer): for mortgages that are not high-ratio you can approach your employer (or former employer) for temporary loans or money for any vacation days outstanding. The human resources department is usually the avenue to go through.
5) A consumer proposal drafted by a bankruptcy trustee: this legal process requires that your creditors reduce or forgive specific debts. It can also be used to file for bankruptcy if all of the above fail. Unlike debt settlement however, bankruptcy will affect your credit because it stays on your records for at least 6 years while a consumer proposal lingers for 3 years. In most bankruptcy cases assets are divided among your creditors although with some creditors you may be allowed to stay in your home.
It’s best to exhaust all methods since a foreclosure will have adverse impacts on your credit history.