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The topics in the Dial-A-Law series provide general information on a wide variety of legal issues in the Province of Alberta. This service is provided by Calgary Legal Guidance funded in part by the Alberta Law Foundation.
This topic discusses foreclosure proceedings on a mortgage against land.
Foreclosure is an area of law that is rapidly changing. Recent changes in legislation and in the practice of our Court indicate that the law in this area is unsettled. You should check your situation with both a lender and a lawyer as to how a foreclosure may affect you.
If you default on your mortgage terms, the Bank or lender that holds a mortgage on your property may commence Court proceedings against you to collect on the debt. You are “in default” when you fail to make the required mortgage payments on time; however a lender is not likely to begin foreclosure proceedings if only 1 payment is late. The lender may contact you to ask if you intend to make the overdue payments. If you fall behind more than 1 payment, or in arrears, the lender will begin foreclosure proceedings by sending you a Demand Letter for payment.
At this time, you may decide to offer a Quit Claim to the lender. A Quit Claim is an agreement made between you and the lender where you agree to give up your property to the lender, and the lender agrees to cancel the debt. The lender may only agree to accept your Quit Claims under certain circumstances.
Once the foreclosure action has started, it may proceed quickly. You should consult a lawyer immediately after you are served with a Statement of Claim. The Statement of Claim is the first step in the foreclosure action. The lender must have filed the Statement in the Court and served a copy on you. The Statement will set out the amount of money you owe to the lender, and ask the Court to enforce the mortgage and grant the lender the remedy needed to recover its debt. The lender will specify which remedy it wants in the Statement of Claim.
The lender will also file an Affidavit of Value that states the value of the mortgaged property. This document will also be served to you with the Statement of Claim. The value is estimated by a real estate appraiser who has examined the property. If you disagree with the value estimated by the appraiser you may wish to get an appraisal of your own. If you refuse to let the real estate appraiser into your home, this will be noted in the Affidavit. The refusal may result in a value that is less than the value of your property because the appraiser may assume that your property is in poor condition.
You will have 15 days to reply to the Statement of Claim. You may file a Statement of Defence, or a Demand of Notice. The Statement of Defence sets out the defence you may have to the lender’s claim. Owners who are in default generally have no defence to the debt and therefore a Statement of Defence is rarely filed in a foreclosure action. ADemand of Notice is more commonly the reply to the Statement. The Demand is a notice to the lender that you require notice of all further steps they will take in the action.
If you do not file a Statement of Defence, or a Demand of Notice in the time allowed, you will be noted in default by the lender. If you are noted in default, then you are deemed to have admitted the allegations made by the lender in the Statement of Claim. The lender will ask the Court for an Order Nisi, or an Order for sale. This Court Order will confirm the debt you owe to the lender, and if not the debt is not paid within a certain time; the lender may advertise the property for sale. You will be given time to repay the debt. This period of time is known as the Period of Redemption. No further action will be taken by the lender until this time period expires. For residential property in a city the maximum redemption period is 6 months. For agricultural lands, the maximum redemption time is 1 year. The Court may extend, or shorten the time period, or the period of redemption. It will depend upon the circumstances of your situation. For example, the redemption period can be shortened to as little time as 1 day if the lender can show the Court:
- That there is no equity in the property,
- It is unlikely you will ever be able to repay the amount owing
- The property has been abandoned,
- The value of the property will be decreased over the redemption period.
On the other hand, the Court may grant a longer redemption period if you can bring special circumstances to the Court’s attention. For example, if you can show that you are likely to pay your debt. You may have been ill or injured and could not make payments during that time, but now you are back working and are able to make up the missed payments. You may also have children who are almost through the school term. The Court may extend the time until your children finish the school term. The Courts will tend to be more sympathetic if you have substantial equity in your property rather than little or no equity in your property.
You will be notified when the redemption period is up. If you have not paid your debt, the sale of the property is made according to the Order Nisi, or Order for Sale. The Order will provide the directions for the property sale by tender. The tender process begins with the advertisement of the property for sale in the local newspapers. If there is an acceptable offer, the lender will ask for a Court Order to sell your property to the successful bidder. If no acceptable tenders are received, the lender may ask for a Final Order of Foreclosure or some other form of a Court Order that transfers the title back to the lender. You will no longer have ownership of the property in this case.
Depending upon the type of mortgage you have with the lender, you may, or may not, be required to pay a deficiency arising from the sale of your home. If you paid less than 25% of the purchase price as down payment, then your type of mortgage is probably a CHMC mortgage, which allows the Bank, or lender, to sue you for the balance of the debt owed against your home. For example, if your property is valued at $80,000 but you owe $95,000 to the lender, the lender may have a right to sue you personally for the deficiency of $15,000.You should consult with a lawyer if your property is a CHMC (Canadian Household Mortgage Corporation) mortgage, or a NHA (National Housing Act) type mortgage.
At one time it took a foreclosure about 1 year to be completed. The attitude of the Courts, however, has changed over the last several years and currently a foreclosure can be completed within 2-3 months. Do not ignore the Statement of Claim that will give you notice of the foreclosure action, and immediately consult a lawyer to protect yourself.