If you’re a homeowner paying a mortgage, going through a job loss, divorce or severe illness, your ability to make your monthly payments can fall into jeopardy. If you miss just one monthly payment, your lender has the option of finding you in default and starting the process of taking your home away. If you’ve already received the letter starting this process, then you need to reach out to a real estate attorney to make sure your rights are secured. This article is not intended to provide legal advice; it is just an overview of how foreclosure and power of sale take place – the two most common ways that banks take property back when mortgages go into default.
How does foreclosure work?
If you go through foreclosure proceedings, a judge delivers an order that transfers the title of your house from you to your lender. Your debt goes off the books, but you end up with a foreclosure on your credit report. After that point, though, the lender can’t ask you for another dime. Here are the basics of the foreclosure process:
- 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.
- 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.
What is a power of sale?
The “power of sale” process still takes your house away, and you still go in front of a judge for the ruling. However, your bank doesn’t take the title at that point in time. You hold onto it until you sell the house, at which point the title transfers directly to the purchaser. However, your obligation can continue past the point of sale if you don’t get a purchase price high enough to satisfy the balance due and any fees. In that case, you would still have to make up the difference. Here are some of the basics of the power of sale process:
- 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.
- 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.
- 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.
- Did the mortgage have PMI? If so, the insurer can go after the borrower if the lender files a claim on that insurance policy.
Has your mortgage gone into default?
At HOS Financial, we have a rent to own program that can help homeowners avoid default, even if the process has begun. Here’s how it works: we buy the house from you, and you use the sale proceeds to satisfy the lender. You might have a couple of late payments on your credit report, but you won’t have a foreclosure or power of sale – either of which torpedoes your credit for at least seven years. You then enter into a lease purchase agreement with HOS Financial, so you stay in your house while you make rent payments, with a portion of that each month going toward your future down payment. At the end of the lease term, you go to the bank and take out a new mortgage. If you’re in danger of defaulting and live in the Waterloo Region of Ontario, give us a call today!