One of the scariest experiences you can go through is the worry that you will lose your home. If you miss even one mortgage payment, you run the risk of ending up in default, which can start a legal process that ends with you out on the street. Has your lender already notified you in writing that you are in default? Then it’s time to talk to a real estate attorney to make sure that all of your rights are upheld. This article is not legal advice but instead is just about an overview of the two different legal processes that can lead to the loss of your home – foreclosure and power of sale. Do you live in the Durham Region of Ontario? Are you in danger of default? HOS Financial has solutions for you, even if the legal process is already underway.
How does foreclosure work?
When most people think about losing their homes to the bank, foreclosure is what they think of first. This involves a legal process whereby a judge finds that foreclosure is necessary and, at that point, ownership of the house changes from the borrower to the bank. Your debt is satisfied, and the bank can take no further action against you. Here are some of the basics of this process:
- Because the lender owns the property now, the lender can sell the property as quickly as the lender chooses to do so – at any price. The borrower’s debt is paid in full either way.
- The lender is not required to enter into negotiations with possible buyers – which is a big difference in comparison to a power of sale. The lender assumes the risk of having the sale price come in less than the owed balance.
- If the sale of the house brings in more than what the borrower owed on the balance of the loan (including fees), the lender gets to keep those profits.
What is a power of sale?
The “power of sale” process ends the same way as foreclosure, in that the defaulted borrower ends up losing his or her house. The main difference has to do with the way the transfer of ownership happens. With a power of sale, the transfer happens at the sale of the property, when it goes directly from the borrower to the buyer. Another difference is that the borrower can end up on the hook for more money afterward, depending on how the sale goes. Here’s an overview of how a power of sale works:
- The bank never shows up as the owner on the title. The property ownership goes right from the borrower to the purchaser of the home.
- In many cases, you get to use a realtor (or even have to use one). This is good for the borrower, because it makes a higher sale price more likely.
- If the home sells for more than the balance due (including fees), the borrower gets the difference. If there is still a balance due, though, the borrower has to make good on the difference.
- If the borrower feels like the process has been unfair – with regard to the commission of the sale – he or she can ask for an audit of the process.
- Did the mortgage have PMI? If so, the insurer can go after the borrower if the lender files a claim on that insurance policy.
What if you’re in the default process right now?
Have you already gotten a letter indicating default? Consider the HOS Financial rent to own program. You sell the house to HOS Financial – and then you use the proceeds to pay off your balance. Then, you start a lease purchase contract with HOS Financial. You stay in your own home, and you pay rent each month. Some of that rent goes into a savings pool for a down payment on your next mortgage. Once the lease is up, you go to the bank and start a new mortgage. Your credit report doesn’t show anything about a power of sale or a foreclosure – which means your financial life isn’t in ruins. If you’re curious about how we can help people in the Durham Region, give us a call today!