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Foreclosures in BC – What to Do If You’re Facing Foreclosure


The Foreclosure Process in British Columbia

Foreclosure law varies from province to province and from state to state. I’m going to concentrate on BC law, and discuss the process from the point of view of a property owner who is being foreclosed on by a lender. Foreclosures in BC follow a pretty consistent pattern, with predictable outcomes. If the borrower does not satisfy the lender the property will generally be sold. This may or may not get the borrower off the hook. If at all possible it is best for the borrower to be pro-active and try to satisfy the lender.

Recourse and Non-Recourse Loans

Mortgages can be divided into recourse and non-recourse loans. A recourse loan means that the lender can continue to pursue legal remedies against the borrower if sale of the property does not generate sufficient funds to satisfy the outstanding balance on the loan. In other words, if you owe the bank $200,000 and they foreclose on you and sell the property for $100,000, they can continue to come after you for the outstanding balance of $100,000.

A non-recourse loan means that the bank can only come after your for the value of the collateral. Once they foreclose and sell the property they can no longer chase you. This gives rise to the term “key mail”. Borrowers with non-recourse loans who realize that they are facing foreclosure can simply give the property to the lender(for instance, by mailing them the keys) and call it a day.

The vast majority of residential mortgages in BC are recourse loans. Any standard mortgage agreement will be a recourse loan, meaning any mortgage from a bank or other financial institution will be a recourse loan. You can’t depend on the bank being satisfied with simply selling the property. They may well decide to let a borrower off the hook after the foreclosure sale, but they do so at their discretion.

Foreclosures in BC and Compromise Settlements

Most foreclosures in BC run the full process, starting with a demand for payment and ending with a Conduct of Sale. This process usually takes the better part of a year. During this time the debt continues to mount up, and it does so more quickly than it did before the foreclosure began because penalties, additional interest and legal fees are tacked on.

It is advantageous for the borrower to end the process as quickly as possible. This can be difficult because it generally requires sale of the property, and not all borrowers want to sell and move. It is important to be realistic at this point. If you do not have any way to pay the debt aside from selling the property it is better to sell the property early, before the debt grows.

Another obstacle to doing this is the value of the property. It is common for the value of the property to be less than the amount owed on it. If this is the case you cannot sell without the lender’s cooperation, because they are required to clear their mortgage from the title before the new buyers can actually buy the property. However, if the bank believes that you are acting in good will and that you have gotten as much as can reasonably be expected for the property the lender may be willing to enter into a compromise settlement that allows you to move on with your life.

Equity of Redemption

Equity of redemption is simply the amount of value in the property minus the outstanding debt owed to the lender. In other words, if your property is worth $200,000, and the debt owed to the lender is $150,000, your equity of redemption is $50,000. The law tries to protect your equity of redemption by requiring court approval of any court ordered sale. This prevents lenders from disposing of properties at below market value.

If you are facing foreclosure this matters to you because every day that goes by increase the debt owed, which reduces your equity of redemption. The sooner you sell the more you will retain, assuming the sales price exceeds the debt owed.

Of course, even if the sale price does not exceed the debt owed, the faster the sale the less you’ll owe the lender in the end.

What Steps Should You Take?

If you own property and are facing foreclosure proceedings contact us immediately. We will meet with you and determine whether selling the property is in your best interests. If selling the property is your best course of action we will list it and do everything possible to sell it quickly. With your authorization we will discuss the issue with the lender or the lender’s lawyer. Because we have acted in many foreclosures in BC, both buying and selling, we can be very effective negotiators. We understand the process and can get you the best solution in the shortest time with a minimum of inconvenience.

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