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A foreclosure is when a homeowner is unable to pay their mortgage and as a result they forfeit their rights to the property. If the home owner can’t settle the debt on the property or sell as a short sale, the home would go to an auction. If the home is not sold at auction then it would become property of the bank.
When a person buys real estate in Canada they typically sign a mortgage deed, this document states that the property bought is a secured loan held against the money borrowed.
When a financial institution gives you a credit card or personal loan, they can take you to court for not paying the money owed. Frequently banks will sell these loans off at a discount to a third party collection agency who will then pursue the outstanding monies. These types of loans are typically known as unsecured loans.
A secured loan however differs as the bank may take action to regain the money lost by either seizing or selling the home you purchased.
There are different stages to a Foreclosure in Canada:
Failure To Make Payments:
Foreclosure is usually a long process but is initiated when a home owner fails to make their mortgage payments. This typically occurs when the home owner loses their job, goes through a divorce or due to poor health.
Public Notice Stage:
A lender in Canada will file a notice publically after three to six months of missed payments. Essentially, this period is designed to make sure the home owner is aware the foreclosure process has been initiated.
Pre foreclosure Stage
There is a grace period which usually lasts between 1 to 3 months. During this period the home owner can negotiate the outstanding mortgage balance with the bank. If the lender fails to reach an agreement with the bank at this stage then the foreclosure process continues.
The Auction Process
Canadian banks set a date for the home to be sold as a Canadian foreclosure auction. At auction the home is sold to highest cash bidder.
Post Foreclosure stage:
If no one buys the property at auction the bank retains the property and it becomes known as bank owned real estate. These homes will then be sold through Canadian real estate agents or at liquidation auctions.
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