The topics in the Dial-A-Law series provide general information on legal issues within the Province of Alberta. The purpose of this topic is to inform you of your legal rights and responsibilities. This is not legal advice. If you require legal advice, you should contact a lawyer.
This topic discusses foreclosure proceedings on a mortgage against the land.
If a person does not comply with their mortgage terms, they are considered ‘in ‘default’. At this point, the bank or lender that holds a mortgage on the property may commence court proceedings to collect the debt.
The lender may contact the borrower and ask if they intend to make the overdue payments. A lender is not likely to begin foreclosure proceedings if only one payment is late. If the borrower falls behind by more than one payment, they are ‘in arrears,” and the lender will usually send a demand letter for payment before starting foreclosure proceedings.
Foreclosure is an area of law that is rapidly changing. Recent changes in legislation and the courts’ practice indicate that the law in this area is unsettled. You should consult both the lender and a lawyer to determine how a foreclosure may affect you.
If a borrower is in default of their mortgage, they may decide to offer a Quit Claim to the lender. A Quit Claim is an agreement made between the borrower and the lender where the borrower agrees to give up their property to the lender, and the lender agrees to cancel the debt. The lender may only agree to accept your Quit Claim under certain circumstances.
Quit Claims are discussed at greater length in Dial-a-Law topic 472.
Statement of Claim
The Statement of Claim is the first step in the foreclosure action. The Statement of Claim will set out the amount of money owed to the lender, asks the Court to enforce the mortgage, and grant the lender the remedy needed to recover its debt. The lender will specify which remedy they prefer in the Statement of Claim. The lender must have filed the Statement of Claim in Court and personally served a copy on you.
Once the foreclosure action has started, it may proceed quickly. If you are served with a Statement of Claim, you should contact a lawyer immediately.
Affidavit of Value
The lender will also file an Affidavit of Value. This document will be served to you along with the Statement of Claim. This Affidavit will state the value of the mortgaged property. The value of the property is estimated by an independent real estate appraiser who has examined the property. If you disagree with the value estimated by the appraiser, you may get an appraisal of your own.
If you refuse to let a real estate appraiser onto your property, this will be noted in the Affidavit. The refusal may result in the appraiser valuing the property at a less than the actual value of the property, as the appraiser may assume that the property is in poor condition.
Replying to the Statement of Claim
Once served with a Statement of Claim, a defendant has 20 days to reply to that Statement of Claim. A defendant may file either an (a) Statement of Defence or (b) a Demand of Notice.
Statement of Defence
A Statement of Defence sets out a defense that the borrower may have against the ‘lender’s claim. This defense should give a reasonable explanation as to why the mortgage payments are not being made. Borrowers who are in default generally do not have a defense, and therefore a Statement of Defence is rarely filed.
Demand of Notice
A Demand of Notice is a notice to the lender that the borrower requires notice of all further steps they will take in action. The Demand of Notice is more commonly the reply to the Statement of Claim in a foreclosure proceeding.
Failing to reply to the Statement of Claim
If a borrower does not file a Statement of Defence or a Demand of Notice within the time allowed, they will be noted ‘in ‘default’. This means that the borrower is deemed to have admitted the allegations made by the lender in the Statement of Claim.
Period of Redemption
The lender will ask the Court for an Order Nisi, or an Order for Sale. This is a Court order that confirms the debt owed to the lender and a deadline for payment. This period of time is known as the Period of Redemption. No further action will be taken by the lender during this Period. If the debt is not paid within the Period, the lender may advertise the property for sale.
For residential properties in a city, the maximum Period of Redemption is six months. For agricultural lands, the maximum Period is one year. A court may extend or shorten the Period of Redemption, depending on the circumstances.
The Period of Redemption can be as short as one day if the lender can show the Court that:
- There is no equity in the property;
- It is unlikely the borrower will ever be able to repay the amount owing;
- The property has been abandoned; and
- The value of the property will be decreased throughout Redemption.
The Court may extend the Period of Redemption if the borrower brings exceptional circumstances to their attention. For example, if you can show that you are likely to pay your debt or that you missed payments because of an illness or injury, you are now back working and able to make the missed payments. You may have children who are almost through the school term, but the Period of Redemption ends before the end of the school term. The courts tend to be more sympathetic if you have substantial equity in the property. The courts may give you a longer Period of Redemption to live in your home and attempt to pay the debt.
Order for Sale
When the Period of Redemption is complete, the borrower will be notified. If they have not paid the debt, the sale of the property is made according to the Order for Sale. The Order will provide the directions for the property sale by tender.
The tender process begins with advertising the sale of the property in the local newspapers. If there is an acceptable offer from the advertisement, the lender will ask for a Court Order to sell your property to the successful bidder. If no fair offers are received, the lender will ask for a Final Order of Foreclosure or some other form of the court order that transfers the title back to them. The borrower will no longer have any ownership of the property.
Selling the property may not recover the amount of money that was owed to the lender. The difference between the amount of money owed and the amount the property was sold for is called the deficiency“”. Depending on the type of mortgage, a borrower may be required to pay the deficiency.
You can also hold a mortgage insured by Canada Mortgage and Housing Corporation (CHMC) or the National Housing Act (NHA). This is a mortgage where the borrower paid less than 20% as a down-payment on the purchase of the property. If you hold an insured mortgage by CHMC or NHA, the lender may sue the borrower to balance the debt owed against their home. For example, if a property is valued at $80,000.00, and you owe $95,000.00 to the lender, the lender may sue you personally for the deficiency of $15,000.00.
Timing of Foreclosure
Currently, a foreclosure can be completed within two to three months.
Dial-A-Law is a Calgary Legal Guidance public service project funded in part by the Alberta Law Foundation.