Foreclosure Terms in Canada

Do you have trouble understanding the meaning of foreclosure and what this process is all about? You will find all the details you need to know about foreclosure and other related terms below. Everything will be explained to you in a comprehensive manner so that any misconceptions are avoided. For more details on individual situations please seek professional advice.

Foreclosures

Foreclosure is what can occur when the owner of a property is unable to pay the debt generated by owning the property. A case in which the lending institution will try to recover the borrowed amount through a foreclosure auction. Practically, the homeowner is the borrower and the actual ownership of the property falls in the hands of the lending institution. Thus, when a person will request a mortgage or borrow a large sum of money, the lending institution will require a lien on the person’s property. This will give the institution the security that it will have a way to recover the money that was borrowed, in case the homeowner will fail to pay his or her debt. Of course, the foreclosure will not take place immediately after failing to pay a monthly payment. There is an entire process that needs to be respected.

First, if you fail to pay the monthly rates and do not contact the lender to find a solution to your case, the lender will take the matter into its own hands. You will receive a notice as a first step. Then this will be followed by a pre-foreclosure, auction, and post-foreclosure. The purpose of this process is to terminate the debt of a homeowner by selling the property in the favor if the lending institution.

Pre-foreclosures

In case a homeowner does not pay the set rates of a mortgage, for instance, the lending institution can’t just sell the property. The homeowner will receive a Notice of Default or NOD, which is practically a warning toward the risk of losing the property, as a result of unpaid debt accumulations. After the NOD is received, the homeowner will enter a pre-foreclosure period. Depending on the lending institution, this pre-foreclosure period can last anywhere between 1 and 3 months. During this period, the homeowner has a last chance to pay his debts and avoid losing the property. This can be achieved through an arrangement with the lending institution, short sale of the property, or by simply paying the debt.

Power of Sale Homes

Power of Sale is actually a clause present in mortgage documents, which enables the lending institution to sell the property in case the homeowner fails to pay the debt generated by the mortgage. This type of clause is a practice commonly met in several provinces such as Ontario when it comes to mortgage authorizations. It gives the lender the power to sell the property of a borrower, in case debt is not paid according to the set contract terms. It is worth knowing that Power of Sale can be used without a court order. So, a homeowner can face foreclosure in a shorter period in this case.

Canadian Foreclosure Terms

Bank Owned Homes

Once a property goes through a foreclosure, it becomes part of the bank’s inventory. Thus, the property will be a bank-owned home. Again, a property can become a bank-owned home if the owner fails to pay mortgage debts, as required by the mortgage documents or according to the agreement reached with the lending institution. For those in search of a home, it is worth knowing that bank-owned homes in Manitoba usually sell at discount prices. Practically, the bank or financial institution is looking to retrieve the sum borrowed by the former owner of the home. So, in order to unblock the funds held by its inventory, it will be willing to sell the property for a lower price than that practiced by the real estate market.

Distress Home Sales

A home can go through a so-called “distress sale” when the funds held by the property need to be released in an immediate manner. This kind of sales occurs when the homeowners need funds for urgent payments, like the payment of a mortgage, considerable medical expenses, or other types of payments that need to be covered in an immediate manner. Usually, in the event of a distressed home sale, the owner will usually accept offers that are lower than in the case of a regular home sale. This is due to the fact that the owner will be willing to take whatever offer comes his way, considering that he or she is facing financial difficulty.

Estate Home Sales

An estate home sale takes place when the owner of the property, or one of the owners, passed away and the persons that inherited the property wish to sell it. The term “estate sale” is used to elegantly present the fact that the property wasn’t renovated or upgraded in a rather long period. This aspect, of course, will be reflected in the selling price of the property. So, this is why estate home sales will come at lower prices, as the property will require a good amount of work. Besides the event of having to invest considerably in such a property, there are other risks associated with buying such a property. For instance, when there is more than one owner, there can be issues when it comes to the selling price of the property. Thus, if one or several owners may accept an offer, another owner may decline it, so it can be rather difficult to sell or purchase this kind of properties.

Repo Home Sales

A repo home sale occurs when the lender got the property rights over a home, due to the fact that the owner failed to pay the rates generated by a mortgage loan. Thus, after the lender repossessed a home, it will want to sell it in order to retrieve the amount that was supposed to be paid by the homeowner. This kind of sales usually take place through auctions and the property is sold to the person that offers the highest bidding price. But, even so, these properties sell at a lower price than the one practiced by the market. The main interest of the lender is to get its loan back, not necessarily to make a profit.

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