When you stop making regular mortgage payments to your lender, several events will inevitably happen. You will be assessed fees for late payments, your mortgage will fall into default, your credit rating will fall as the late or missed payments are reported to the credit bureaus and other lenders will be more hesitant to lend to you when you have a history of not making your mortgage payments on time.
Ultimately, defaulting puts you in danger of losing your home. In Ontario, the method most commonly used by lenders to enforce mortgages is a Power of Sale process. It grants the lender the authority to sell the property without court involvement and the right to sue the borrower for any short-fall in sale proceeds to cover sale expenses and other debts against the property. Less commonly used is a Judicial sale under the supervision and authority of the Court, also referred to as a Foreclosure. In a Foreclosure, the lender takes title to the property and is essentially considered to have accepted the property as full satisfaction of the outstanding loan and is, therefore, unable to seek additional compensation.
A common misconception is that there are only options available to the mortgage lender should a person default on their mortgage. However, there are precautionary steps that you can take to avoid losing your home, losing your initial investment and essentially increasing your debt. One should contact the lender and advise of the difficulty. This allows the lender the chance to make alternative arrangements which may include a repayment plan to help you get caught up on your late payments. In most cases, the lender is not interested in Power of Sale or Foreclosure proceedings where other remedies are available. Your mortgage broker and lawyer will also be able to advise you about your options.
Download the PDF: Concepts Newsletter – Winter 2011