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ForeclosureQ- What is foreclosure?
Most people who purchase property need to borrow money from a bank or financial institution of some sort to cover the purchase price. Usually the loan is secured by a mortgage. If you do not make payments on the mortgage when they are due the lender may foreclose the property. This means the lender can take legal steps to sell the property at a public auction. In Nova Scotia, usually the process involves both foreclosure and sale of property. Q-When can the lender foreclose on my property?
The lender can start foreclosure proceedings if your loan goes into default. Default means you either fall behind in your payments or you do not comply with the terms set out in the mortgage. Most mortgages have an acceleration clause which says if you miss a payment the entire amount due on the mortgage is payable immediately. Usually before taking legal action the lender or his or her lawyer will send you a call for balance letter or demand letter. This letter tells you the amount owing and says it is your last chance to pay before the lender takes legal action. Once the legal process begins, the lender is usually not entitled to any interest penalties on the money outstanding. Q- Will I be notified if the mortgage company is foreclosing?
Yes, the lender, also known as the mortgagee, commences foreclosure proceedings by having a legal document called an Originating Notice and a Statement of Claim delivered to you personally. They are required to serve you this notice in person. It is not something they may drop off in your mail box or courier to you. If you disagree with its contents, you should file a defence within 20 days of receiving the document. If you do not either file a defence or apply for other relief, such as applying to court to have the foreclosure discontinued, the lender may continue proceedings to have your house auctioned after a further 20 days. Q- What is an Originating Notice and a Statement of Claim?
An Originating Notice informs the court that the lender is starting a legal process against you based on a violation of terms on your loan or mortgage. It states who and what is involved in the foreclosure process. A Statement of Claim is served along with the Originating notice to inform you that the lender is taking legal action. The Statement of Claim outlines the details of what the lender is claiming against you in court. It may include the following: 1) The date of the mortgage 2) Details of the registration of the mortgage 3) The property involved 4) Details of the default (for example, you defaulted because you did not make a payment or broke some other term of the mortgage) 5) The total amount outstanding on the mortgage or amount unpaid 6) A statement asking for foreclosure and sale 7) A statement asking for a deficiency judgment to cover the balance of the loan if it is sold for less than what is owed on the mortgage. Once you are served the Originating Notice and Statement of Claim you may either pay the money or you can file a defence to the claim. You have 20 days to do this from the date you were served. If you choose to file a defence, it should include why you feel your property should not be foreclosed. You should also consult the legal advice of lawyer if you wish to file a defence. Some examples of defences may include: 1) That the mortgage was not signed 2) The borrower never received money from the lender 3) The borrower has repaid the lender 4) The borrower has not broken any terms of the mortgage and is not in default You must file your defence with the court and serve the lender or their lawyer personally with a copy of your defence. The court will then determine a date for you to dispute the lenders claim to a foreclosure. Q- Can the foreclosure process be stopped?
The easiest way is to negotiate with the lender. If you have missed payments, contact the lending institution and discuss the situation. Never ignore the lender’s letters or inquiries. A second alternative would be to redeem the mortgage by paying the full amount owing on the mortgage, including the interest, principal and any penalties or costs, before the Sheriff’s sale. This way you keep the equity built up in your home. There is a third alternative, but it can only be used once during the life of a mortgage. You can apply to court to have a foreclosure action discontinued (have the mortgage reinstated) upon payment of arrears and costs. However, this can only be done before the lender has obtained a court order for foreclosure and sale. Q- Can the lender refuse to accept payments once a court process has begun?
No, under section 42 of the Judicature Act you have the right to discontinue the foreclosure process by paying all outstanding arrears owed to the lender or mortgagee. This can be done up until a foreclosure order has been issued by a court. This right is only available once per mortgage and must be done by filing an Order of Discontinuance with the Supreme Court of Nova Scotia. Q- Who will be at the court hearing?
Who will be at the court hearing? The lender who starts the foreclosure proceedings will be the plaintiff in the case. You or whoever owns the house will be the defendant. If someone acted as a guarantor for the mortgage, they may also be present as a defendant. Where the defendant has not filed a defence, only the plaintiff will be present at the foreclosure hearing. Q- What happens at the foreclosure hearing?
If you do not file a defence the lender will apply to a Judge with an Ex Parte Application, also known as an Interlocutory Notice, seeking a foreclosure order and sale. At this hearing the Judge can: 1) Ask for more information on the mortgage 2) Order that others be present before he or she hears the case 3) Direct the sale of the property 4) Give directions as to what should happen if the defendant did file a defence or 5) Make an order setting out what should happen concerning the payment of the money owed Q- How is the property sold on foreclosure?
If the court orders the sale of the property it can be sold at a public auction by the Sheriff for the county where the land is located or by any other person given that power by the court. The person selling the property must advertise the sale in a local newspaper in the area where the property is located. There must be at least two advertisements printed in a local newspaper, one within 20 days of the date of sale, and one within 10 days of the date. The property owner and the borrower, if they are not the same person, must also receive notice within 30 days of the sale. This notice can be sent by regular mail. Q- Can the lender buy the property on foreclosure?
Yes, the property is sold to the highest bidder in a public auction. The successful bidder will have to pay 10% of the sale price at the time of the auction and then has 20 days to pay the remainder. If the lender is the successful bidder he or she may still ask for a Deficiency Judgment. Q- What is a Deficiency Judgment?
A Deficiency Judgment is a request by the plaintiff for the difference between the amount owing on the mortgage and the amount received from the sale of the property. The lender must show that the amount obtained from the sale of the property is a fair market price. This is determined either by actual sales or though appraisal. The mortgagor and anyone else who may have to pay the deficiency amount will receive a notice of the deficiency hearing. The plaintiff (lender) can apply for a Deficiency Judgement within 6 months from the date of the Sheriff’s sale. Q- What if the sale price is more than the amount owing to the lender?
If the sale of the property brings in more money than the amount of Sheriff’s fees and outstanding taxes and the amount owed to the plaintiff the surplus is given to the Accountant General of the Supreme Court. It will be distributed among those who have filed claims against the property and those who are owed money by the borrower. They can apply to the court to be paid and are paid according to priority. Before these people are paid the Sheriff must pay any outstanding taxes on the property from this surplus. If a surplus still remains, any party involved with the foreclosure may apply to the court or judge to receive that surplus. Before applying however, each party must file an affidavit to prove they are entitled to a claim. The court or judge may then order the dispersal of the surplus to the applicable parties by priority. Q- Can the sale be overturned?
Yes, the court does have the power to overturn the sale in exceptional cases. An example would be if the directions in the foreclosure order were not followed. Q- What happens once the property is sold?
Once the property is sold and the amount due has been paid to the plaintiff, the Sheriff files a report with the court as soon as possible. This report says that the property has been sold, the name of the successful bidder, the purchase price, how the money was distributed and that the Sheriff has delivered the deed to the property of the successful bidder. Q- What happens once the Sheriff’s report is received by the court?
Once the report is filed, the plaintiff will apply for a Confirmatory Order. This order states that the sale has taken place and that the foreclosure is complete. The plaintiff must also file: 1) The sheriff’s report and 2) An affidavit (usually prepared by the plaintiff’s lawyer) stating that the advertisement was done and notices were sent to all those who had interest in the property. Q- How soon do I have to leave the property after the sale?
You must leave the property once the successful bidder completes the purchase if you are a homeowner, unless the new owner says otherwise. If you are a tenant, how soon you move out depends on the type of tenant you are. If you are a residential tenant (ex. renting an apartment) you must be given at least 3 months notice. If you are a commercial tenant (a place rented for business) you must move out the day of the foreclosure sale, unless otherwise told by the new owner. The successful bidder becomes owner of the property once the full purchase price has been paid and the Sheriff gives him or her the deed. Once the Confirmatory Order is granted, the foreclosure is complete. Q- How long does the foreclosure process take?
Usually foreclosure takes 2 or 3 months but it depends on the court schedule. There is the 20 day advertisement period before the property can be sold and the 20 day time limit for the payment of the full purchase price by the successful bidder. The rest of the time involved will depend in the availability of a judge to hear the case and grant the orders. Q- Do I need a lawyer?
Foreclosure is difficult and complex procedure. It is best to talk with a lawyer or debt counselor if you are unsure about what to do. Unfortunately Legal Aid will not deal with this type of case. The Legal Information Society offers a Lawyer Referral Service if you need help finding a lawyer. Through this service you can be referred to a lawyer who will talk with you for up to 30 min for a fee of $20+tax on the first meeting. The number is 420-9779 in the Halifax Municipality, and toll free at 1-800-665-9779 if you are outside metro. Q- How can I avoid foreclosure?
The best way to avoid foreclosure is to comply with the terms of the mortgage contract. If that is not possible then you may be able to talk to the person who loaned you the money and work out an arrangement. You may consider selling the property and paying off the mortgage. Q- Is bankruptcy an option to stop foreclosure?
No, the lender can still foreclose if you are in default of the mortgage terms. It may help you to declare bankruptcy on other debts so that you may concentrate your finances on paying the mortgage. You should talk to a debt counselor about your financial situation and the options open to you. Q- Can I sell my house during the foreclosure process?
Yes, you may attempt to sell the house or property up until a foreclosure order has been issued by the court. Q- If I miss payments, can the mortgage company take my house?
When you arrange a mortgage, it is a contract between you and the lending institution, whereby you agree to re-pay the principal and interest according to a set schedule. While you are considered the legal owner of the house, the lender will have registered this mortgage with the Land Registry, to protect their interests. If you fail to make the scheduled payments as set out in the mortgage agreement, the lender has the legal right to force a sale of the house. However, most lenders prefer to avoid foreclosing, and will make reasonable efforts to accommodate your circumstances, including refinancing or setting up a payment plan that better suit’s your financial situation. return to top of page
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