Foreclosure

Years ago, it was the accepted practice for lenders to recover loans by way of a writ of foreclosure.

Here were the basic rules:

The lender's lawyer, having a good sense of propriety, sent a letter to the borrower advising him if late payments were not brought up to date forthwith, further legal action would be necessary, and costly.

If the borrower did nothing about it, a writ of foreclosure was served by a sheriff's officer, which made the matter very serious business. Some lawyers of course didn't bother with a warning letter.

They just charged ahead with the writ, tacking hundreds of dollars onto it for their trouble.

If the borrower did not seek legal advice, and ignored the writ, the lender could proceed to gain title to the property and the matter would be at an end.

Of course, all subsequent encumbrances would be also served, having the opportunity to payoff the plaintiff mortgagee and own the mortgage.

When the lender obtained a final order of foreclosure, the borrower forfeited all equity he had in the property. This was the sad part. However, if the lender later sold the property, and didn't get enough to cover his mortgage loan, it was too bad for him.

There were three basic things a borrower could do about a writ of foreclosure:

• He could bring arrears up to date within the time specified by the writ, pay the lender's legal fees, and carry on making payments under the mortgage.
• He could pay into the court and ask that the property be sold by the sheriff's office. After the sale -and after paying for its cost, the mortgage debt, and everybody having liens against the property - the borrower would be paid any money left over.
  This could prevent him from losing his equity in the property. But if there was a shortage in the mortgage account, he could be sued.
• He could file a request to redeem the mortgaged property. This would give him a period of six months, after taking of the account of the amount due the lender, in which to get the money to settle the matter.

Sometimes the legal business of figuring out precisely how much was owing (taking of the account) could delay matters for a couple of months, which meant the borrower had eight months on his side.

Despite the advantage of an occasional property gain by foreclosure, the long, drawn-out business was a drag for most lenders, especially financial institutions which just wanted the debt repaid. So it became more popular and quicker to proceed by notice under a power of sale.

This cleans the matter up in a matter of weeks, instead of months. After the sale, any money left after paying everybody off is given to the borrower, the one who lost the property.

But if the sale doesn't produce enough to payoff the lender and his lawyer, the borrower will be sued for the balance.

Now the period of time allowed to redeem property in a foreclosure action has been reduced from six months to 60 days.

The rules may vary from state to state, and from province to province.

Back To Top