Frequently Asked Questions
About Foreclosure in Alberta
Below we have some common questions and explanations for terms that homeowners often ask us when it comes to a foreclosure in Alberta. Understanding these foreclosure terms can help you have a better understanding going forward.
Some general legal principles of foreclosure law are as follows:
What is my obligation to pay on a Conventional Mortgage?
A conventional mortgage is described as one where the loan to value ratio (LTV) is 80% or less. In Alberta, the lenders only form of security is a charge against the land. If the mortgage goes into default, the lender can enforce the mortgage by way of a foreclosure action which may result in the sale of the land. If proceeds of sale are not sufficient to pay off the mortgage loan and accumulated legal costs, the lender has no recourse against the borrower to repay any deficiency.
This critical divergence from the general principle is unique to Alberta only. In the event of default on a conventional mortgage, the lender’s remedy is restricted to foreclosure against the land and the lender is unable to enforce any covenant in the mortgage against the borrower personally in the event of a deficiency.
What is a High Ratio Mortgage?
The federal Bank Act provides that when a bank provides a mortgage loan, the LTV ratio shall not exceed 80% of the value of the property. An exception to this rule is a high ratio mortgage loan made under the federal National Housing Act (NHA). If a lending institution makes a mortgage loan under the NHA, the loan will be insured by either the Canada Mortgage and Housing Corporation (CMHC) or by a private insurer (to date, Genworth Financial Canada is the sole private insurer of high ratio mortgages), with the borrower paying the insurance premium. In all other respects high ratio mortgages are the same as conventional mortgages.
What is a Personal Guarantee?
Personal guarantees from third parties are sometimes required by lenders as additional security. If a default occurs in a mortgage, and if the lender cannot repay a mortgage loan from the sale of the land or from realizing on the borrower’s personal covenant, then the lender can call on the guarantor to repay outstanding arrears.
What is my obligation to pay on a High Ratio Mortgage?
If the mortgage is an NHA high-ratio mortgage, the borrower remains personally liable to the lender for any deficiency. This personal liability continues even if the borrower sells the property to a third party who assumes the mortgage and also attaches to the new purchaser and so on down the chain of title no matter how many times the property is subsequently resold so long as the mortgage is assumed by each new purchaser.
I’m thinking of walking away from my property with a conventional mortgage due to personal financial issues because someone told me I won’t be held liable. Is this true?
No! Just because the lender can’t pursue you doesn’t mean there aren’t other consequences. At the very least your default will be reported to the credit bureaus, most likely resulting a very poor credit score severely limiting any future access to credit.
How much time do I have once I miss a mortgage payment before they start foreclosing?
Missing one payment doesn’t automatically start the foreclosure process, usually. But either way it’s not good! Typically a foreclosure won’t be started until at least two payments are missed and initially most lenders will start by trying to contact you and determining what is happening. This can also vary due to economic situations (like home prices decreasing), equity in the property (large amounts of equity can give you more leeway) and mortgage types (conventional versus high ratio insured) and while one lender may not start the process until three payments have been missed, another may start at the first missed payment.