Understanding the foreclosure process in Alberta is an important part of navigating your own home foreclosure.
Before we dive in…
Understanding the Foreclosure Process in Alberta
What is foreclosure anyway?
Foreclosure is the legal process that lenders use to take back property securing a loan, generally after the borrower stops making payments.
Foreclosure is no fun. But just know that it’s not the end of the world.
When you know how foreclosure in Alberta works… it arms you with the knowledge to make sure you navigate it properly and come out the other end as well as possible.
What Are The Different Types of Foreclosure?
Judicial Foreclosure: This is a court-supervised process where the lender files a lawsuit against the borrower in order to obtain a court order allowing for the sale of the property to recover the debt. This court order that allows for the sale of the property is called an “order for sale”. The court oversees the entire foreclosure process which includes the sale of the property through a public auction. This is often the method used when there are disputes or complexities involved in the foreclosure process. An example of this would be the borrower and lender disagree on the value the property should be sold at.
Power of Sale: This is also known as foreclosure by advertisement or non-judicial foreclosure. This is a process where the lender can sell the property without court intervention. Typically, this process takes much less time than a judicial foreclosure, in some cases the lender can recover the debt on the property in a matter of weeks. A power of sale can only take place if the mortgage agreement includes a power of sale clause. The lender must follow specific procedures outlined in the mortgage agreement and relevant legislation to conduct the sale.
*** It’s important to note that the specific procedures and requirements for each type of foreclosure can vary, so it’s recommended to seek legal advice or consult with a real estate expert if you are facing foreclosure in Alberta.
The Basic Stages of A Foreclosure
Below you will find the basic stages of both types of foreclosure, starting with judicial foreclosure. Remember foreclosure works differently in different provinces around the country.
In either scenario, foreclosure typically doesn’t go to court until 3-6 months of missed payments have elapsed. Usually (but not always), a lender will send out many notices that you are in arrears – overdue or behind in your payment.
If you want to have us walk you through the specific process of foreclosure in Calgary Alberta then Connect with us by calling (403) 383-6592 or through our contact page.
Stages of Judicial Foreclosure:
In Alberta, the stages of a judicial foreclosure typically involve the following steps:
1. Default on Mortgage Payments: If a borrower fails to make mortgage payments in the manner that was agreed on in the terms of the mortgage agreement, the lender will initiate the foreclosure process.
2. Demand Letter: This letter is sent from the lender to the borrower in order to notify them that they are in default and requesting payment be caught up. They will advise the outstanding amount and provide a specific time period in which it is to be paid.
3. Statement of Claim: If the borrower does not fix the default as it was laid out in the demand letter (they fail to pay back what is owed in the allotted time frame) then the lender will file a Statement of Claim in court. It is this process that officially initiates a judicial foreclosure.
4. Court Proceedings: In this initial proceeding the court will review the Statement of Claim. If it is determined that the borrower is in default, and that the lender has the right to foreclose on the property, then it may issue a foreclosure order.
5. Redemption Period: This takes place after the foreclosure order is issued. During the redemption period the borrower has the opportunity to pay off the debt. The only difference from the first time they were advised they were in default and payment was requested is that now they not only need to pay the debt owed, but they may need to pay additional interest and costs, in order to redeem the property. The length on the redemption period varies.
6. Sale of Property: If the borrower does not redeem the property during the redemption period, the property is typically sold through a public auction. This is supervised by the court.
7. Confirmation of Sale: After the property is sold, the court must confirm the sale to finalize the transfer of ownership to the new buyer.
8. Distribution of Proceeds: The whole purpose of this process is so that the proceeds from the sale are used to pay off the outstanding mortgage debt. This will include interest, costs, and fees. Any surplus funds may be returned to the borrower or other lienholders.
The timeline for the borrower to vacate the property after it has been sold varies based on court procedures and enforcement actions. Once the property is sold the new owner of the property can apply for what is called Writ of Possession. After this is obtained the new owner can request a Civil Enforcement Agent to remove the occupants from the property. Typically, this agency will provide a notice to vacate the property within a given time frame.
It’s important to note that the specific procedures and timelines for a judicial foreclosure in Alberta can vary based on individual circumstances and court decisions. As always Northgate House Buyers recommends seeking legal advice or consult with a real estate expert (like us!) for guidance through the foreclosure process.
Stages of Power of Sale (or Non-Judicial Foreclosure):
Reviewing the specific stages of a Power of Sale will really help you in understanding the foreclosure process in Alberta.
In Alberta, a power of sale, also known as “foreclosure by advertisement” or “Non-Judicial Foreclosure”, is a process that allows a lender to sell a property without court intervention. In order to action a Power of Sale the mortgage agreement must include a power of sale clause. Without it the lender cannot utilize this method to recover the debt owed from the borrower. The stages of a power of sale in Alberta typically involve the following steps:
1. Default on Mortgage Payments: The borrower fails to make mortgage payments as per the terms of the mortgage agreement, triggering the lender’s right to exercise the power of sale.
2. Notice of Default: The lender sends a Notice of Default to the borrower, informing them of the default and providing a specified period to pay back what is owed.
3. Notice of Intention to Sell: If the borrower does not remedy the default within the specified period of the Notice of Default, the lender sends a Notice of Intention to Sell, informing the borrower of the lender’s intention to sell the property.
4. Listing the Property for Sale: The lender lists the property for sale, typically with a real estate agent, and sets a date for the sale.
5. Sale of Property: The property is sold through a public auction or private sale, as allowed by the mortgage agreement and applicable legislation.
6. Distribution of Proceeds: The proceeds from the sale are used to pay off the outstanding mortgage debt, including interest, costs, and fees. Any surplus funds may be returned to the borrower or other lienholders.
7. Transfer of Ownership: Upon completion of the sale, the ownership of the property is transferred to the new buyer.
As noted above, it’s important to note that the specific procedures and timelines for a power of sale in Alberta can vary based on the terms of the mortgage agreement and applicable legislation. It’s advisable to seek legal advice or consult with a real estate expert (like us!) for guidance through the power of sale process.
It is worth mentioning that anyone who has an interest in the property must be notified during either type of foreclosure. For example, any contractors or banks with liens against a foreclosed property are entitled to collect from the proceedings of an auction.
What Happens After A Foreclosure Auction?
After a foreclosure is complete, the loan amount is paid off with the sale proceeds.
Sometimes, if the sale of the property at auction isn’t enough to pay off the loan, a deficiency judgment can be issued against the borrower.
A deficiency judgment is where the bank gets a judgment against you, the borrower, for the remaining funds owed to the bank on the loan amount after the foreclosure sale.
Some provinces limit the amount owed in a deficiency judgment to the fair value of the property at the time of sale, while other provinces will allow the full loan amount to be assessed against the borrower.
Here’s a great resource that outlines deficiency judgments in mortgage proceedings in the province of Alberta. Due to the fact that laws governing mortgages differ from province to province, this article deals with Alberta laws only.
Foreclosure auctions are typically best avoided. Instead of going through a foreclosure auction, it is advisable to contact the bank or partner with a reputable real estate company like Northgate House Buyers to assist in negotiating discounts on the outstanding amount to prevent foreclosure.
Seasoned investors can be instrumental in negotiating with financial institutions to reduce the amount due in a sale, and in some cases, eliminate it altogether, especially if the property’s value is lower than the outstanding debt.
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Calgary Homeowners: If you are struggling with Foreclosure, or managing another form of debt, please check out this “guided pathway” to help you decide what options you have, and what makes the most sense for your debt situation. Check out the link to their Debt Guide below for further information on your journey of understanding the foreclosure process in Alberta.