The foreclosure process is one which usually takes several months to unfold in the vast majority of cases, but, it is also one that moves inexorably once it begins, can end up with you and your family without a place to live, and with a credit score in ruins.
If your lender has already provided you notice of default, then you need to speak with a real estate attorney to shield your rights in any process started against you. This article does not provide legal advice but just gives you a basic look at how foreclosure and power of sale both work. They both can lead to you losing your home.
Do you live in the Guelph 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?
The word “foreclosure” is what most people associate with the loss of their home thanks to failure to pay their mortgage. 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:
- Since the lender owns the property now, the lender is entitled sell the property as quickly as the lender chooses to do so, with no price restrictions. The borrower’s debt is paid in full either way.
- The lender does not have to enter into negotiations with possible buyers – which is the most significant 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 the balance due of the loan (including fees), the lender gets to keep those profits.
How does the power of sale process work?
The “power of sale” process has the same outcome 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 and any deficit/profit on sale of the property. With a power of sale, the transfer happens when the property sells, when it goes directly from the defaulted borrower to the new buyer. Another difference is that the borrower can still owe money after the house is sold, depending on how the sale goes.
Here’s an overview of how a power of sale works:
- The bank never appears as the owner on the title. The property ownership goes right from the borrower to the purchaser of the home.
- 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.
- 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.
- Did the mortgage have Mortgage Insurance such as CMHC/Genworth? If so, the insurer can go after the borrower if the lender files a claim on that insurance policy.
- 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.
What if you’re in the default process right now?
Have you already received written notice of default? Consider the HOS Financial Lease Buyback/rent to own program. You sell your home to HOS Financial and use the proceeds to pay off your Mortgage balance. Then, you start a lease purchase contract with HOS Financial. You stay in your own home and pay rent/lease each month. Some of that rent (20%) goes into a savings pool towards the 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 Guelph Region, give HOS Financial a call today!