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What to Do When Your Bank Threatens Foreclosure

Friday the 13th, March 2020, will gone down in infamy. That’s the day everything “went sideways”, according to the Canadian Real Estate Association. You too?

The 2020 Ides of March 

Canada’s national housing agency, Canada Mortgage and Housing Corporation (CMHC), had predicted 2020 would be the year Toronto’s real estate market “bounced back”. That was pre-pandemic. As we know, new home listings across Canada dropped off the COVID-19 cliff in March, declining by an astounding 12.5%.

What’s Happening to GTA House Sales

Good news though — while GTA house sales were down by 20.8% that month, sales are recovering. The Greater Golden Horseshoe real estate market started strong in 2020, as CMHC forecast, and after a brief blip, prices began climbing again in major centres like Ottawa. 

Higher Interest Rates on the Horizon?

How will the recovery fare? Moody’s had expected interest rates to go up by a full percentage point by 2022. With high consumer debt holding housing prices in check, the U.S. credit rating agency thought Toronto would see a 3.3% gain in house prices between 2019 and 2024.

Housing Prices May Have Peaked  

So much has changed. RBC, Canada’s biggest bank, believes house prices have peaked already. While real estate listings tripled after COVID-19 lockdowns were lifted, supply is outpacing demand. Markets now have more sellers than buyers. Condos especially could see softer prices. 

Where Housing Could Go Next

The recent uptick is not here to stay, RBC predicts. Prices in urban centres could begin dropping by the middle of 2021. And while the impact on the GTA is “buffered” by its early spring rebound, even those sales are just a fifth of what they were in March and April. Housing demand Canada-wide could be soft as immigration slows. We’re in for gradual and uneven recovery, RBC says.

GTA Could Recover Quicker

No question that job losses since the pandemic started put the brakes on some potential home buyers. Unemployment climbed 15% in Toronto alone. CMHC sees millennials living at home longer than usual — 47.4% in Toronto already bunk with their parents. But there’s good news too. Strong pre-construction sales in Toronto could aid the region’s real estate recovery, CMHC predicts, putting the city ahead of Ontario by January 2021 with positive growth in 2022.

Bringing Relief to Unemployed Homeowners

The cautiously optimistic prognosis helps Ontario home owners who lost their jobs to the pandemic. Mortgage payment deferrals only last so long. Once CERB ends in October, EI could be next. While most lenders will leave you alone as long as you keep paying the mortgage, now is the time to start planning how you will keep you and your family home afloat.

Who’s Default Is It

Defaulting on a mortgage is a legal headache you definitely don’t need right now. Mortgage agreements come with terms and obligations, like making monthly payments. But you can also be in default if you:

  • don’t insure the property 
  • stop paying property taxes
  • remortgage without your lender’s consent
  • let your home fall into disrepair
  • or you sell without bank approval.

That’s because your home is security for your mortgage lender. 

Reminders and Then Demands

The first sign you could be headed for default is constant reminders your mortgage payments are late. Phone calls and demand letters asking for the outstanding balance will follow. Your lender can go to court to get possession of the property and force its sale or foreclosure. Your bank will add the cost of selling your home to whatever you owe.

Being Proactive, not Reactive 

Sitting idly by won’t pay the mortgage. If job loss has left you short and you can’t get a mortgage deferral or make interest-only payments, talk to a lawyer. They might be able to help delay or prevent a foreclosure. At least, they can attempt to get power of sale, instead of foreclosure. Power of sale allows your lender to sell the property, pay themselves and give you the excess. Foreclosure is much more drastic.

Knowing When You’ve Hit the Wall

If the next letter you get is a notice of sale or statement of claim titled “foreclosure”, your home is about to be sold out from under you. You can try talking it over with your lender to see if you can bring the mortgage into good standing. The statement of claim will give you a deadline for paying the balance and legal or other fees. Provided your mortgages don’t exceed your home’s value, you have a right to request a power of sale instead of foreclosure. Otherwise, you will need to find a new mortgage. Pronto!

Refinance With a Private Lender

High credit risk clients — that could be you if you’re seriously out of work or in debt — can have problems refinancing. If traditional lenders turn you down and you are determined to keep your home, ask a mortgage broker for help. They may be able to find a private lender to remortgage your property and pay your first or second lender. Replacing your mortgage with a new one can work when job loss is temporary or you expect to buy down your debt soon. As long as your mortgages don’t exceed 80% of your home’s value, you could qualify. 

Rent While You Look for Work

When foreclosure nightmares keep you awake at night, renting out a bedroom or two, basement suite or cottage at the lake could be the answer. Rental income makes you all that more desirable to mortgage lenders. Be prepared to pay a property manager or real estate firm 10% of rent to advertise your unit and collect the rent.

Selling Your Home to Prevent Foreclosure

As a last straw, you can always sell. Selling avoids an embarrassing foreclosure. It’s better for your credit score and gives you more control over your destiny. When your lender forecloses, you have no say in the list price and may not get a thing from the sale. By taking charge, you can ask more for the property and maybe swing a deal that works to your advantage with any profits you get. You keep the leftover equity and your dignity.

Ontario’s Flat Fee Real Estate Lawyers 

Axess Law Ontario real estate lawyers can go over your options with you. Make an appointment for an online video call anywhere in Ontario, 7 days a week, day or evening. Dial toll free to 1-877-552-9377 or 647-479-0118 in Toronto or use our online booking form. In person meetings are available in our Toronto, Scarborough, Vaughan, Etobicoke, Ottawa, Mississauga Winston Churchill or Mississauga Heartland law offices. 

Click here to learn more about Axess Law’s real estate law services.

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