How Does the Foreclosure Process Work?
Foreclosure, not a process that anyone wants to go
through but putting your head under the covers and hoping that
something is not going to happen is not the option. Knowing how
the foreclosure process works will not only help relieve some of
your stress but also assist you in making things progress much
more smoothly.
You are probably aware that when you first purchased your
property you also took out a mortgage with a finance company.
This means you became the Mortgagor and your lender became the
Mortgagee. In law you conveyed your property to the Mortgagee in
exchange for the obligation to pay regular payments towards the
amount owed as well as the right to live in the property. This
remains true as long as you keep up the payments on your
mortgage. When problems arise and you cannot keep up these
payments you are classed as being in default and the foreclosure
process starts. In some countries and states you also have to
maintain other obligations such as paying the obligated taxes.
There are four main stages to the foreclosure process:
1. The demand for monies due or accelerating the mortgage.
2. The issuance of a petition.
3. The Order Nisi.
4. The Order Absolute.
Demand: The first stage of foreclosure is when the Mortgagee
elects to accelerate the mortgage such that all of the amount
due under the mortgage falls due almost immediately. This
usually happens after you have several months arrears. The
Mortgagee makes a formal demand for the full amount of the
mortgage to be repaid.
Petition: This is not normally possible for the Mortgagee to do
this so the Mortgager then commences action in the Supreme Court
of their province by setting up a Petition. They then become the
Petitioner and you become the Respondent. If you also have other
interested parties in your properties such as liens, other
mortgagees etc., they also become a Respondent.
It is at this point that you need to be taking legal advice as
well as devising a financial solution to your problem. If you
wish to contest this Petition you have 22 days from the date of
service to file an Affidavit with the nature of your defence and
why you feel the Petitioner is invalid or inaccurate. In this
case a trail usually takes place. Defended petitions are very
rare and can take up to 18 months to be heard.
Order Nisi: If there is no defence to the petition then matters
are likely to become expensive for you. The Petitioner is now in
a position to obtain an Order Nisi of foreclosure which is the
initial Order obtained within the foreclosure process. At the
Nisi stage the Court will establish the amount which is owing to
the Petitioner. This will include the balance owing, arrears,
interest and costs. Their will also be a Redemption period set,
usually 6 months, during which time the Respondents can pay this
amount due.
If it can be shown that even if the property is sold, this
amount cannot be raised, this period may be reduced. A Per Diem
– the daily rate of interest due will also be set. If this
Redemption amount is paid during this period, the property may
be redeemed, or owned by the Respondents.
Once the Order Nisi has been granted, the Court has two courses
of action:
• Enforce the Judgement obtained by selling other assets.
• Proceed with the foreclosure proceedings.
The Court also has the power to order that the Petitioner accept
the amount of arrears so put the mortgage back into good
standing. When making this decision the court will take into
account the amount of arrears, the reason for the arrears and
whether the mortgage has been in arrears before.
Order Absolute: The next stage is the Order Absolute which is
taken after the expiration of the redemption period. On
receiving a Certificate from the Court Registry that no money
has been paid into Court, the Petitioner requests that the Order
Nisi be made absolute. This means the Respondent no longer has
any interest in the property and the property is now legally
conveyed to the Petitioner. For some property owners deep in
debt, this Order sometimes comes as a relief. This also means
that the Petitioner also loses their right to proceed further
against the Respondent even of the property is subsequently sold
for a loss. Unfortunately if the property is sold for a profit,
the Petitioner also keeps the profit.
The foreclosure process usually takes from 8-9 months and the
Mortgagee usually obtains either the arrears due, the total
amount of the money due under the mortgage or the property in
dispute. It is a stressful and costly, but fair process to all
involved.
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