A Borrower’s Guide to Foreclosure

Abstract

[To keep this terminology straight, it might help to remember that the mortgagor (the suffix "or" means "to give") gives an interest, pledge or charge in his land to the mortgagee (the suffix "ee" means "to receive") in return for the loan.]

In many provinces of Canada that follow the land titles system, by law the mortgagor (not the mortgagee) remains the registered owner of the land. The house is pledged as security only, and is not transferred to the mortgagee when the loan is made at closing. This means the mortgagor, who might be asset-rich but cash-poor, can try to sell the property on the open market and fetch the highest price possible for it. The whole mortgage and arrears can then be paid off, pleasing the mortgagee. The mortgagor pockets the $70,000 equity, and can apply it toward the next home.

An "Order Nisi" (specific performance) by the court stipulates the amount owed to the mortgagee, and the time for redemption. The redemption period will depend upon several factors, most notably the personal circumstances and pleas of the mortgagor, the amount of indebtedness on the mortgage, and the amount of equity in the land. The more equity held by the mortgagor, the less likely one will persist in the default of payment and, equally, the less risk for the mortgagee. A standard redemption period is about six months. However, actual redemption can occur right up until the moment the property is transferred, although redemption is rare at that point. The legal definition for the word "foreclosure" according to the Law of Property Act is the point at which the mortgagor is "deprived of his equitable right to redeem."