Mortgae Default Remedies

Mortgage Default Remedies

When the owner purchases the property the bank lends the money and in return it's the owner who gives the mortgage. Thus, the mortgage is the document that spells out the terms of the repayment such as monthly payment, amortization, interest rate and such, but also contains options and remedies that the bank may follow in the event that the owner defaults on payments.

The Bank has Three Major Options or Remedies when an owner stops making payments
One option open to the bank is to attempt to obtain title of the property by accepting a Quit Claim Deed from the owner. The owner may choose this quit claim option, but it's up to the bank whether or not they will accept a quit claim. Usually the bank will not accept a quit claim, I will talk about the reasons more later.
Second option open to the bank is to initiate a foreclosure action through the courts in order to gain title back to the property.
A third option, and the one most used in Ontario, is to sell the property under Power of Sale. This option is most used in Ontario because not only will the bank attempt to get all their money back through the sale but the bank also retains the right to sue the owner for payment of the outstanding debt. That's worth stating another way. Even if the property is sold by the bank under power of sale, if the sale price does not cover all the costs and expenses then the bank still retains the right to sue the owner (even after the sale) for any deficiency. That's the power of a mortgage that you accept when you need the banks money to buy the property in the first place.

One of the interesting differences between Canada and the United States is very evident in how banks exercise their remedies when an owner is in default. In the United States many properties end up in foreclosure rather than power of sale. The reasons for this are as follows. Banks in the US are mostly privately owned and are very interested in maximizing their profits. If an owner defaults on mortgage payments, the bank will often initiate foreclosure proceedings through the courts to obtain possession of the property so they can sell it. Banks and the US in general are a very litigious society and their systems are set up to deal with litigation much quicker than in Canada. Thus, banks in the US will try to foreclose on properties where the owners are in default in order to have the title passed over to them via the court foreclosure action and then turn around and fix up the property and then try and sell the property for a profit. Any profit or proceeds from the foreclosure sale over and above the mortgage amount are the banks and thus it's in their interests to profit from the transaction.

The converse is true in Canada. The major banks and lenders in Canada are for the most part publicly owned and certainly are government regulated. Much more regulation than the US, that is a fact. Banks in Canada do not want the negative press that comes along with removing owners from properties and putting them on the street while they make a profit from the transaction. The Mortgages Act, common law and legislation in Canada are far different than in the US. Thus, the banks in Canada have to follow the law and the Mortgages act and the provisions of the clauses contained and allowed to be contained in mortgages and they sell the property under power of sale, while the owner is still residing in the property or not, and still retain the right to sue the owner after the sale. This allows the banks to exercise their rights while not causing negative press amongst the public and the owners. It's a winning situation for Canadian banks.

Pre-Foreclosures
Pre-forclosure's are properties that have not been foreclosed upon yet, but are heading that way if the homeowner does not come up with a solution to catch up on the mortgage payments that are in arrears. They also include properties that have been foreclosed upon and are going up for sale at an auction. There are just about as many sources for foreclosure information as there are for leads for other sellers that may want to sell their home. With Pre-foreclosures however, there are some even better (specialty) sources of this information. You will find that there are far more pre-forclosure properties available in the US compared to Ontario.