About Foreclosure & The Foreclosure Process
Our firm provides legal assistance to parties who become involved with the foreclosure process in British Columbia. A foreclosure is a legal process in which a lender, who was granted a mortgage by a debtor on land as security for a loan, seeks to recover the loan amount by forcing the sale of the land through a legal process known as “foreclosure”.
If we are acting for a debtor (commonly referred to as the “mortgagor”) who granted mortgage security to a lender then the legal services we provide are as follows:
- We explore whether a foreclosure can be avoided by negotiating a forbearance agreement with the lender. Forbearance agreements typically provide the mortgagor with a period of time in which to remedy the mortgage defaults on terms acceptable to the lender;
- We review the mortgage to determine whether any grounds exist to challenge the validity and enforceability of it;
- We prepare a response in the foreclosure proceeding to ensure the mortgagor is kept informed throughout the process; and
- We generally assist the mortgagor during the foreclosure process including with a sale of the property or new financing.
If we are representing a lender (commonly referred to as the “mortgagee”) who has a mortgage registered on title to property then the legal services we provide are as follows:
- We review the mortgage and related security to ensure that it is valid and enforceable;
- We prepare a demand letter to the mortgagor and any guarantors or covenantors on the mortgage;
- We prepare the foreclosure petition and related documents and serve it on the mortgagor and all other parties;
- We proceed with the various steps in a foreclosure including seeking Order Nisi, Conduct of Sale, Approval of Sale, and Order Absolute (if applicable), and we assist with the sale process of the property.
If we are representing a guarantor of a mortgage, then the legal services we provide are as follows:
- We review the form of the guarantee to determine whether any grounds exist to challenge the validity and enforceability of it;
- We review the foreclosure petition and related materials to determine whether the claim against the guarantor is valid;
- We negotiate settlements on behalf of guarantors; and
- We generally assist guarantors throughout the foreclosure process.
The Foreclosure Process
The typical steps in a foreclosure proceeding are as follows:
- The registered owner of property defaults in making one or more mortgage payments to the secured creditor (commonly referred to as the “mortgagee” in a foreclosure). The mortgagee has a mortgage registered on the title to land owned by the debtor (commonly referred to as the “mortgagor”) as security for the debt.
- Demand is issued by the mortgagee to the mortgagor demanding the amount owing on the mortgage, and a demand will be issued to any guarantors of the debt.
- The mortgagee commences a foreclosure proceeding by filing a petition and supporting affidavit with the court. The mortgagee is known as the “petitioner” in the foreclosure petition.
- The foreclosure petition will name the registered owner of the property, other chargeholders, and anyone else with an interest in the property such as a tenant as “respondents”. The petitioner then serves the foreclosure petition and supporting affidavit on each respondent.
- Each respondent has 21 days from the date they are served with the foreclosure materials to file and serve a “response” on the petitioner. A respondent must file a response if they wish to challenge the validity or enforceability of the mortgage or related documents such as a guarantee, where they wish to generally participate in the foreclosure proceeding or where they wish to stay informed about the status of the foreclosure proceeding.
- The petitioner files a notice of application seeking an “order nisi“. It is served on all respondents who filed a response.
- If the petitioner’s application for Order Nisi is granted then the order will state whether the mortgage has been found to be valid and enforceable, grant judgment against the mortgagor and any guarantor (unless disputed), and it will set the period for redemption. The purpose of the redemption period is to give the registered owner a period of time in which to remedy the mortgage default. During the redemption period, the registered owner remains in control of the property and thus, can list it for sale, determine the listing price and real estate agent if he/she decides to sell the property. In a residential foreclosure, the redemption period is typically 6 months provided the value of the property is sufficient to repay the mortgage debt owing to the petitioner.
- A respondent may apply to extend the redemption period beyond the 6 month period if there is evidence that the value of the property is sufficient to repay the petitioner.
- If the redemption period is not extended then once that period expires the petitioner’s next step is to apply for a “Conduct of Sale Order”. If granted, this order will allow the petitioner to control a sale process by giving it the right to choose the listing price and the real estate listing agent. Any offers received by the petitioner are subject to court approval.
- Once the petitioner receives an acceptable offer then it files a court application seeking an order approving that offer; this is commonly referred to as an “Approval for Sale Order“. The petitioner will provide evidence as to the fair market value of the property; this is usually done by an appraisal or BC Assessment of the property. The petitioner will also provide evidence detailing the public sale process including the list price for the property (and any reductions in price), the number of people who enquired about or who viewed the property, and the number of offers made for the property. The court needs to be satisfied with the sale process before it will approve any offer. Anyone else who is interested in making an offer for the property can attend in court on the date set for the hearing and they can present their own offer. If multiple offers are presented at the hearing then the court has the discretion to order that there be a “sealed bid” process whereby all interested parties are given one final opportunity to present their best offer. Generally, the person with the highest offer will be successful and an order will be made confirming the sale of the property to that party. However, it is important to recognize that the courts do not always order a sealed bid process when facing multiple offers. Therefore, anyone interested in making an offer for the property must be aware of the risk associated with delaying presenting their offer until the court hearing.
- The petitioner completes the sale. If there are any surplus funds remaining after payment to the petitioner then the petitioner pays the surplus funds into court. The respondents can then apply for payment out of the surplus amount and priority rules will determine which of them is entitled to the surplus funds.
- The petitioner files a “certificate of sale” with the court that provides the details of the disbursement of the sale proceeds.
*The above information is intended to provide a general overview of some of the key aspects with respect to foreclosure proceedings in British Columbia; it is not intended to be an exhaustive overview of this legal process. The above information is not intended to be and should not be construed as legal advice. Debtors and creditors who may be involved with a foreclosure proceeding are strongly advised to seek legal advice.