Foreclosure is a legal process that can happen if a homeowner does not meet their mortgage obligations. In Alberta, lenders can take steps through the courts to recover the money owed, which may include selling the home or taking ownership. This page explains how foreclosure works, what options homeowners may have, and common legal issues to watch for.
Need to know
- Foreclosure is a legal process started by a lender when a borrower defaults on a mortgage.
- Missing payments, not paying taxes, or not maintaining the property can lead to default.
- The foreclosure process usually involves the courts and can take months or longer.
- Homeowners may have options, including catching up on payments or selling the home.
- A lender may sell the property or become the owner to recover money owed.
- In some cases, homeowners may still owe money after foreclosure.
What is a foreclosure?
Foreclosure is a legal process where a lender (usually a bank) tries to recover money owed on a mortgage. This can happen if the homeowner breaks the mortgage agreement.
The mortgage is a legal contract. If the borrower does not follow its terms, the lender can go to court to enforce their rights.
In Alberta, there are many laws that apply to foreclosures, including:
- Law of Property Act
- Land Titles Act
- Alberta Rules of Court
- Contract law
A default happens when a homeowner breaks the terms of the mortgage. Common examples include:
- Missing mortgage payments
- Not paying property taxes or condo fees
- Not keeping insurance on the home
- Allowing serious damage to the property
- Becoming bankrupt or insolvent
A lender can start foreclosure after just one default, although this does not always happen right away because the foreclosure process is expensive.
The foreclosure process
The foreclosure process is meant to stop the lender from losing money. When the lender starts the process depends on how many payments you have missed, the value of the property, how much you owe and other risk factors. The process can take less than three months to a year or more
While there are specific steps in the general process, each situation is different. For example, if you and the lender agree on next steps to work out a payment plan, you may not have to go to court. Other times, you will have to go to court.
Tip
If you do not respond to court documents within the required time, the lender can move forward in court without your input, which can speed up the foreclosure process. You should get legal help right away. For a list of places that can help, refer to the following resources on CPLEA’s Get legal help in Alberta page.
Foreclosure usually involves many legal steps. In general:
- The lender sends a demand letter asking the borrower to fix the default.
- The lender files a Statement of Claim in court to start the foreclosure process and serves a copy to the borrower. The borrower has 20 days to respond.
- The borrower files a Statement of Defence in court and serves a copy to the lender.
- Whether the borrower responds or not, the lender applies for a court order saying what to do with the property. The lender must file an Affidavit of Value (includes an appraisal with current fair market value of the property) and an Affidavit of Default (includes amount owing on the mortgage, amount in default, and other default information).
- The court decides what should happen next based on the situation. The court may:
- Give the borrower time to catch up on payments (called Redemption and Listing Order)
- Order the property to be sold and transfer ownership to the lender (usually through an Order for Foreclosure or Order for Sale to the Plaintiff). If a third party makes a valid offer to purchase the property when it is sold as set out in the order, the court may approve the sale to that third party (Order Confirming Sale and Vesting Title)
- Not grant an order (if the borrower did not default or has made all outsanding payments)
- Declare no foreclosure
If the court orders that the property be transferred or sold, you usually have about 30 days to move out. If you do not move out, the lender can take enforcement steps against you through a civil enforcement agency to force you to leave the property.
You can come to an agreement for foreclosure with the lender. A Consent Order for Foreclosure is a court order that you and the lender agree to, rather than the court deciding. Such an agreement can shorten the foreclosure process. The court must approve to the Consent Order.
Did you know?
You can come to an agreement for foreclosure with the lender. A Consent Order for Foreclosure is a court order that you and the lender agree to, rather than the court deciding. Such an agreement can shorten the foreclosure process. The court must approve to the Consent Order.
Options for homeowners
If you are facing foreclosure, you may have options that may be able to stop the process. For example, you can:
- Work out a payment plan with the lender
- Sell the home to pay off the debt
- Go to court to:
- Co-operate with the lender to try to keep the property (however, the lender will want you to pay outstanding amounts and their solicitor-client costs)
- Ask for more time before the final foreclosure order (you need a good reason to do so) or
- Challenge part of the foreclosure process. For example, the outstanding amount, your personal liability (such as if you have a home equity line of credit) or the listing price (by getting your own appraisal)
It is usually within everyone’s best interests for you and the lender to come to an agreement such as a payment plan. Doing nothing may lead to losing the home and may still owe the lender money.
What happens after foreclosure?
You can only appeal a foreclosure order for limited legal reasons and within strict timelines. So, it is important to get legal advice quickly.
If the property is sold, the money goes toward paying the mortgage. In some cases:
- The lender recovers all the money owed
- Or, there is still money owing (called a deficiency)
If there is a deficiency, the lender may be able to take legal steps to collect it, depending on the type of mortgage. If a lender obtains a deficiency judgment against you, they can use legal methods to collect the money owing, such as seizing other assets you own or garnishing your wages or bank account.
Potential issues
Property value
The lender usually does a drive-by appraisal to determine the property value during the foreclosure process – which means it is based only on looking at the outside of the house. But an appraisal that considers the inside of the house usually gives a higher value unless there are major issues inside. You can agree to let the appraiser into the home, or you can also get your own appraisal (which you must pay for). The court will usually consider both appraisals when approving a listing price –which can mean a higher listing price and a smaller deficiency judgement.
Foreclosed home with tenants
Tenants usually have fewer rights in a foreclosure because their interest is not registered on title. In many cases, they may have to move out after a court order, often within about 30 days. If tenants do not move, the new homeowner can hire a civil enforcement agency to force the tenant to leave the property.
Confusion with bankruptcy process
It is important to note that foreclosures are not the same as bankruptcy, although they can sometimes happen at the same time. Foreclosure deals with a mortgage on a specific property. When you default on a mortgage, the lender forecloses on the property to recover their money.
Bankruptcy is a separate legal process that deals with all debts. For example, this includes credit card debts, personal loans, and unpaid bills. Bankruptcy helps relieve a person or company from the obligation to pay some or all of their debts. In such a process, the debtor transfers their assets to a licenced trustee, and the trustee uses the assets to pay the bankrupt’s creditors (people the debtor owes money to).
Solicitor client costs (lawyer’s fees)
Sometimes, there is confusion about why you must pay the lender’s solicitor client costs. Solicitor client costs are the lawyer’s fees plus any money the lender spent on things like filing fees and appraisals. Usually, the mortgage (remember, it’s a written contract that you agree to) says the borrower pays such costs if the lender hires a lawyer when the borrower defaults. In a foreclosure process, this means that you must pay fees for two lawyers: your own (if you hire one) and the lender’s. If you think the lender’s lawyer’s fees are unreasonable, you can ask an assessment officer at the courts to review the bill. The assessment officer may lower the fees if they are unreasonable.
Sometimes, there is confusion about why you must pay the lender’s solicitor client costs. Solicitor client costs are the lawyer’s fees plus any money the lender spent on things like filing fees and appraisals. Usually, the mortgage (remember, it’s a written contract that you agree to) says the borrower pays such costs if the lender hires a lawyer when the borrower defaults. In a foreclosure process, this means that you must pay fees for two lawyers: your own (if you hire one) and the lender’s. If you think the lender’s lawyer’s fees are unreasonable, you can ask an assessment officer at the courts to review the bill. The assessment officer may lower the fees if they are unreasonable.