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Mortgage debt & bankruptcy

mortgages

Defaulted mortgage payments

A mortgage in default means that the borrower has not met their obligations under the mortgage agreement, most commonly this means the borrower has missed one (or more) of their payments.

If you are unable to pay your mortgage, the Bank (or lender) may take legal action to recover what you owe on your home or in missed payments. Legal actions may include forcing the sale of the home and/or further pursuing the borrower for any shortfall, interest or legal costs.

If a mortgage deficiency is the only debt which you cannot manage you might consider negotiating a settlement with the bank or lender to avoid bankruptcy and/or other legal actions.


Types of mortgages

Conventional:   If you have a conventional mortgage you made a down payment of at least 20% of the home cost and the lender will not be able to pursue you for any shortfall to the mortgagee (lender) if the proceeds from the sale of the house are not sufficient to repay the mortgage.

High ratio:   a high ratio mortgage can have non-traditional mortgage terms. In Canada, mortgage insurance is required under Bank Act Law for those making less than a 20% down payment on a property. So if you purchased a home with a high ratio mortgage, you will have mortgage default insurance. If there is a shortfall to the mortgagee (lender) because the proceeds from the sale of the house are not sufficient to repay the mortgage - the lender will obtain a judgment from the court and will be able to pursue you for this deficiency. You may be able to negotiate a settlement with the mortgage insurer.

About mortgage Insurance

Mortgage insurance protects the bank (or the lender) only, it does not protect the borrower or the borrowers interest in the property. If you have an insured mortgage and cannot make a your payments and it is unlikely you will be unable to catch up it may be time to get some advice.

Here are some of the common mortgage insurance agencies, their websites may provide additional information for you and your lender:

CMHC
Claims Payment Centre 1.866.358.9999
Web site: www.cmhc-schl.gc.ca/en/co/buho

Genworth
Toll Free: 1.800.511.8888
E-mail: homeassist@genworth.com or mortgage.info@genworth.com
Web site: www.genworth.com

Canada Guaranty (Formerly AIG)
Toll Free: 1.866.414.9109 ext. 7001
E-mail: lossmanagement@canadaguaranty.ca

Filing bankruptcy — can you keep your home?

If you make an assignment into bankruptcy, your Licensed Insolvency Trustee will determine if there is equity in your residence.

Equity is defined as the difference between what the house is worth, and what is owed on the mortgage and other encumbrances (like outstanding property taxes). If there is equity in your residence you may be required to pay this equity to the Trustee. In many provinces, including Alberta the exemption is $40,000 of equity in your residence. We can discuss this and other exemptions when we first meet with you.

If there is non-exempt equity in the home, under condition that you contribute the amount equal to the non-exempt equity into your bankruptcy (perhaps by borrowing from family or other financing), the Trustee will allow you to keep your house. In most cases, the mortgage company will allow you to renew your mortgage after bankruptcy. The reason is simple: the bank would prefer to have you make the mortgage renewal and continue paying off both the principal amount and the interest, for the next 25 years, than to foreclose and risk losing all the future profit plus an additional amount of money by selling your house at a discounted foreclosure price.

You should check with your lender but in most cases, provided that mortgage payments are up to date, bankrupts are able to make a mortgage renewal after bankruptcy.

To speak to one of our professionals at Grant Thornton Limited call us at 310-8888 for a free, no obligation, confidential consultation.

We can help

Our Licensed Insolvency Trustees (formerly called Trustee in Bankruptcy or Bankruptcy Trustee) and Estate Managers believe everyone deserves a financial fresh start, while being treated with dignity and respect. We have offices conveniently located in Calgary, Edmonton, throughout Alberta, and across Canada.

To speak to someone now call us at 310-8888 for a free, no obligation, confidential consultation.

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