Most of the time, the period between initial default on a mortgage and the final transfer of ownership through Power of Sale or Foreclosure takes a number of months. However, once the process begins, it can be almost impossible to stop – and it can end up with you and your family without a place to live and with a credit score/profile that could make getting even an apartment lease a challenge.
If your lender has already notified you of your default, you need to speak with a real estate attorney to shield your rights in any process started against you. The content of this article should not be construed as legal advice. Instead, it simply 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 Halton Region of Ontario? Is it possible that you will default on your mortgage? HOS Financial has solutions for you, even if the legal process is already underway.
How does the foreclosure process work?
When you default on your mortgage, the lender can initiate proceedings that lead to the foreclosure of your home. 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. This means that foreclosure actually has fewer risks for you than the power of sale process does, although both will leave you without a home and without credit. 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 no matter how much (or little) the sale brings in.
- 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 yields more than the balance due of the loan (including fees), the lender gets to keep those profits.
How does power of sale differ from foreclosure?
The “power of sale” process has the same possible 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 whether the defaulted borrower will owe money after the Home is sold.
With a power of sale, the transfer happens when the property sells, when it goes directly from the defaulted borrower to the New buyer. As mentioned, 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. This is very very rare as any excess on the sale seems to find its way to Legal Fees and other costs to sell the property. 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 or 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 holding a default letter from your bank right now?
Have you already received written notice of default? Consider the HOS Financial rent to own/Lease Buyback 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 (20%) 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 Halton Region, give HOS Financial a call today!