Real Estate: Defaulting on your Mortgage, what you need to know!

Please note that the information provided herein is not legal or real estate advice and is provided for informational and educational purposes only. If you need legal advice with respect to buying, selling, leasing, drafting, reviewing, interpreting or resolving disputes concerning real estate, you should seek professional assistance (e.g. make a post on Dynamic Lawyers). If you require a Real Estate Sales Representative to help you buy or sell resale or new construction residential or commercial real estate in the Greater Toronto Area contact: N. Joseph Khlaif, Sales Representative, B. Comm. Right At Home Realty Inc. Office: (416) 391-3232 Direct Line: (416) 587-5733. Not intended to solicit Buyers or Sellers currently under contract with a Real Estate Brokerage. Defaulting on your mortgage Defaulting on your mortgage…dreaded topic if you're going through it…but important to know if you're unaware or considering it… What's a Mortgage? A mortgage is a loan made by one party (called a lender) in order for a party (called a borrower) to purchaser property. In exchange for getting the loan, the borrower has to use the property as security or collateral to guarantee repayment of the loan. If there is a default, the borrower is entitled (among other things) to foreclose on the home and sell it in order to realize back the borrower's indebtedness. So here's the situation: how can a person default on their mortgage and what happens if they do? Event of Default? Mortgages are very similar in nature but differ in details. That's why it's important to have a lawyer review your mortgage before you accept it or to have a lawyer review it after you've accepted it so that you know your and the lender's legal rights in case of a default. Here are some of the more common ways in which a person can default on a mortgage: Defaulting on a mortgage payment; Becoming insolvent or bankrupt; Abandoning the property; Putting another mortgage on the property; Canceling or failing to renew or keep an insurance policy; Failing to pay property taxes; and Selling the property without the bank's consent. Lender Rights Upon Default The mortgage will stipulate what the lender's rights are upon default. Typically, this includes: Demanding full and immediate payment of the outstanding balance; Initiating a lawsuit to collect the full outstanding balance; Taking rental payments which are due to you; Leasing the property; Selling the property; and Foreclosing on the house. If it appears as though you are about to default on your mortgage, you should contact the lender immediately to see if they can delay enforcing their rights to give you sufficient time to remedy any anticipated breach. Once you've defaulted, lenders will generally send reminder letters or phone calls to start, followed by demand letters and then formal court proceedings. If the lender has to apply to the court to foreclose on the property, they will add those legal expenses to what you owe. Worth noting is that, if the value of your home is worth more than what you owe on the mortgage and you have significant equity in your home, then may want to consider selling your home before you go into default. In this situation, you'll be able to pay off what you owe to the lender while keeping the equity that you have built up. Will Going Bankrupt Prevent Me from Losing the House? Be sure to review your mortgage terms with a lawyer. It's important to note that GOING BANKRUPT will not always prevent you from losing your home. Some people may think that, so long as you continue to pay your regular mortgage payments, you will not lose your house. THIS IS NOT TRUE. If you breach a term of the mortgage – whatever term that may be – and therefore cause an event of default to occur (e.g. by going bankrupt!), then you could lose your home. In these situations, the lender will be entitled (assuming it has properly registered the mortgage in the land title's office) to enforce its rights under the mortgage outside of bankruptcy proceedings to take possession of the home to sell it to recoup debts owed. Don't be fooled! Do your due diligence and speak with a lawyer about your mortgage terms and conditions! The last thing you want is to lose your home because you thought going bankrupt was the ideal situation. Related posts: Toronto Real Estate Lawyers (Part 9): Defaulting on Your Mortgage Toronto Real Estate Lawyers (Part 1): Real Estate Agent Required? Real Estate: Buying Title Insurance? Toronto Real Estate Lawyer (Part 24): Vendor Take Back Mortgages Toronto Real Estate Lawyer (Part 16) – Stages of Buying/Selling Real Estate in Ontario

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