Delinquency is challenging for property owners. You could lose the property if you don’t pay. This can be stressful, and you may need clarification on your options and how to proceed.
However, understanding the guidelines surrounding real estate delinquency empowers you to take control. Below, we’ll explore these guidelines, providing a comprehensive understanding of the delinquency process, its implications, and your options.
Understanding Delinquency
Real estate delinquency occurs when property owners fail to fulfill their financial obligations, such as mortgage payments or property taxes. This failure can lead to severe consequences, including foreclosure, tax sales, and significant impacts on credit scores.
Mortgage delinquency occurs when you miss a payment on your mortgage loan. Most lenders usually have a grace period before late fees are applied, but missed payments can have severe consequences.
Property tax delinquency happens when you fail to pay your property taxes within the designated timeframe. This can result in late fees, penalties, and, ultimately, tax foreclosure by the local government.
Notice of Default
When you miss the initial mortgage payment, most financial institutions will give you a grace period of 15 days before incurring penalties. This means if the payment was due on the first day of the month, you must settle your account by the 16th.
If you don’t make the payment, your lender will send you notices detailing the due amount, penalties, and consequences of missed payments. They’ll also contact you by phone to discuss the situation. If you miss a couple of payments in a row, the lender will issue a Notice of Default, a formal letter demanding payment. This is the first step in foreclosure.
Power of Sale or Foreclosure
If you don’t respond to the notice of demand, the lender will initiate foreclosure or a power of sale to recoup the payment. The process depends on your province’s laws. For instance, foreclosures are common in Alberta and British Columbia, while a Power of Sale is more common in Ontario.
In the foreclosure process, the lender will file a statement of claim with the court to obtain a court order. This will allow them to take the property deed. Once this happens, they can keep or sell the property. This process is long and expensive.
In the Power of Sale, the lender can sell the property without a court order if the mortgage agreement outlines the terms. The property is sold at a fair market price. If there are any surplus funds, they are given to the borrower. Borrowers must cover the difference if the money is not enough to cover the total debt.
Tax Sale
The government will conduct tax sales to recoup the debt if no payment is made. This can be accomplished through a tax lien sale or a tax deed sale. In a tax deed sale, the property will be sold to the highest bidder. In contrast, they sell the right to collect outstanding taxes plus interest in a tax lien sale.
Depending on your province’s law, you may lose ownership outright or have a redemption period. To regain ownership, you must pay all the outstanding balance plus interest within the redemption period.
Late Fees and Penalties
Penalties and late fees will accrue on the outstanding balance. These fees can vary depending on your location but are a percentage of the unpaid amount added monthly or quarterly.
Notice of Delinquency
The local tax authority will send you a formal notification informing you of the delinquency and the outstanding amount. This notice will also outline the deadlines for updating your account and the potential consequences of inaction. Some localities offer installment plans to help you catch up on missed payments over a specified period.
What Are Your Options?
If you find yourself delinquent on real estate payments, there are several options available to address the situation:
- Communicate with your lender or tax authority and try to find a solution.
- Apply for a loan modification by reducing the monthly payment and increasing the repayment period.
- Apply for forbearance if the financial setback is temporary.
- Take out a new loan to pay off the current mortgage.
- Sell the house and repay the mortgage.
Before making any decisions, consult a credit counsellor to assess your situation and develop a clear plan to address your delinquency. Depending on your situation, they can offer more options, like bankruptcy filing.
Legal Compliance
As mentioned above, each province and territory has laws and regulations concerning real estate delinquency. However, there are general guidelines that protect homeowners’ rights and ensure fair treatment.
Firstly, the lender or tax body must maintain open lines of communication with the borrower to explore all possible resolutions. They must offer solutions like loan modifications, forbearance, or repayment plans. All actions must comply with applicable laws and regulations to avoid legal repercussions.
Don’t wait to address real estate delinquency. The sooner you take action, the more options you’ll have to resolve the situation. Remember, open communication with your lender or tax authority is crucial. You should also consult a credit counsellor to help explore your options, regain control of the situation, and save your property.