foreclosing on house – what can the bank do?
I have a house that I have been unable to live in since April, 2010 due to a leaking roof making the house inhabitable. My insurance has refused to help. I am still making mortgage payments but the value is about $200,000. The problem would cost at least $50,000 to fix. After repairs the house is still only worth $200000. My debt would be 50000 more than it would be worth. I am thinking of walking away from the house. I believe that in Alberta Banks have Non recourse.What are your suggestions and what can I do.
Posted from: Alberta
When a bank forecloses on a property the individual(s) signed on the mortgage documents are responsible to pay the mortgage amount in full plus any interest, mortgage penalties and legal costs of foreclosure. So you will be responsible for this shortfall (i.e. the difference between what the bank sells the property for and what the full balance of the mortgage, interest penalties and costs).
The interesting thing is you may not owe this to the bank, depending on how things proceed. Most mortgages in Canada are insured by the CMHC or other equivalent insurance, although this is not insurance for you or I, it is insurance for the bank. So if the bank is unable to collect this shortfall from you they will be reimbursed by CMHC and then CMHC will go after you.
At this point you have a few options, make payment arrangments to pay CMHC (or the bank, depending on what stage of collections things are in), obtain a consolidation loan to pay the balance of the mortgage in full, file an Orderly Payment of Debt program to pay the balance in full plus 5%interest, put forward a consumer proposal to negotiate a court sanctioned settlement with your creditors or potentially the filing of a bankruptcy.
This is the approach taken here in Alberta and mot of the provinces in Canada.