Alberta Mortgages and Foreclosures – What You Need to Know
Mortgage Defaults in Alberta Will Increase
In 2020, Albertans are confronted with the perfect storm of extreme volatility in the already depressed oil market, exacerbated by the unprecedented economic effects of the COVID 19 pandemic. As a result, many Albertans will be forced to default on their mortgage obligations – like their obligations to pay principal, pay interest and pay land taxes – or perhaps even their obligation to pay back the balance of the mortgage owing at the date that the term of the mortgage expires.
What Happens After Mortgage Default?
The following is a rough guide to what happens after a default by a borrower in Alberta. (We will assume for the purposes of this discussion that the default is non-payment of monthly mortgage payments):
- The lender will advise the borrower of the default and request that the borrower cure the default by paying the missed payments.
- If the borrower does not cure the default by making up the missed payments, the lender will usually formally demand payment of the arrears and/or all of the mortgage money.
- If the borrower does not make up the missed payments within the time specified in the demand or as otherwise required by the lender, the lender will send the matter to a foreclosure lawyer to commence a Court action against the borrower. This is usually referred to as a “foreclosure” action. The lender will try and recover its principal, interest and other sums secured by the mortgage, like unpaid taxes. The lender will also ask the Court to add in to the amount owed its legal and other costs of the action.
- The lender’s lawyer will serve the borrower with notice of the action against him/her and a copy of the document that starts and summarizes the lender’s claims against the borrower – a “statement of claim”.
- After service of that statement of claim, the clock starts ticking as the lender’s lawyer attempts to get the property for his/her lender in satisfaction of the mortgage debt as soon as possible.
- The lender’s lawyer will make a series of applications for the purpose of putting evidence before the Court, usually culminating in an application asking the Court to sell the property to a purchaser found through a sales process approved by the Court (e.g. realtor, Kiji, etc.). The Court will apply the proceeds of sale to what it is owed to the lender and others having secured claims against the property. If there is any money left, it will go to the borrower. If the sale proceeds do not cover the amount owed to the lender, in some circumstances, the lender may be able to sue for judgment against the borrower for the difference between what is owed and the net sale proceeds – something often called a “deficiency judgment.”
- The deficiency judgement arising out of a Court-ordered sale as described above is available only where certain facts exist, and where the lender has not made application to simply take title to the property through the Court, as opposed to selling the property through the Court, as above. Sometimes the lender’s lawyer will apply for that true “foreclosure order” which will put title to the property in the lender’s name, for the lender to do with as it wishes. However, the lender will not be entitled to any deficiency judgement against the borrower in that circumstance. Title to the land will be all that the lender gets.
- However, in both instances, the borrower almost invariably has to leave the property – i.e. give up possession.
No Defence to a Mortgage Action?
It has been said that there is no defence to a mortgage action. However, that is not true if there is a serious defect in the documentation or the way it was registered. This happens only rarely, but it does happen. In that circumstance, the mortgage and your debt secured on the property disappear.
We have acted for borrowers in the following foreclosure situations, with good success for the borrower:
- Asserting our client borrower’s protection from a deficiency judgment.
- Blocking a lender from completing a mortgage action triggered by a non-monetary default under the mortgage. The lender had to wait until the expiry of the full term of the mortgage to take any action.
- Negotiating to get more time for the borrower to stay in possession of the property.
- Getting judgment from the Court requiring that the lender pay the borrower’s court costs, due to the lender failing to act reasonably. Normally, the borrower would be required to pay the lender’s court costs.
- Generally cooperating with the lender’s lawyer to increase the amount of equity available from the property to distribute to encumbrancers – and the borrower.
How We Can Help You
Not knowing what your possible opportunities and real options are is a large part of the stress for borrowers in a Court foreclosure action. Most of those opportunities and options tend to disappear as your property goes further into the Court process – but some may be available even before there is a default! For a few hundred dollars in a fixed fee, limited retainer arrangement, we can evaluate your situation, and provide you with a legal opinion as to what opportunities and options are realistically available for you to pursue. If you are one of the many Albertans who are faced with being defendant in a mortgage action, we’d be happy to provide you with that advice – at the earliest possible moment.