Mortgage default occurs when a borrower breaches one or more terms of their mortgage agreement. For example, default occurs where a borrower fails to make a stipulated mortgage payment.
When a borrower defaults, a lender has a right to certain enforcement mechanisms to facilitate their recovery of the amount of money they loaned, as well as interest and expenses, such as legal fees and administrative fees:
In a foreclosure, the lender takes title to the property. The foreclosure process typically takes a substantial amount of time, as the court is heavily involved.
Since the lender ultimately acquires title, they are under no obligation to sell the property.
If the lender sells the property following foreclosure, and it sells for less than the value of the mortgage, the lender is has no right to go after the borrower for the shortfall. On the other hand, if the lender makes a profit on the sale, the lender can keep the profit.
Once a lender commences the foreclosure process, a borrower has the right to redeem. This means that if the borrower pays off the outstanding principal, interest and expenses, the borrower retains ownership of the property.
2. Power of Sale
In a power of sale, the lender has the right only to sell the property.
If the sale of the property generates less than the amount owed to the borrower, the lender can sue the borrower for the deficiency.
Lenders typically acquire the right to power of sale through the mortgage document, but if not, legislation permits this.
A borrower has the right to redeem until the property is sold.
Upon default, a lender is permitted to take possession of a mortgaged property. This remedy is often used in conjunction with power of sale.
In addition to borrowers’ right to redeem, other mechanisms exist to stall or prevent lenders’ enforcement mechanisms.
For example, in certain instances, our lawyers have negotiated resolutions with lenders.
In other cases, it is necessary to take court action. Courts will not always uphold a lender’s enforcement rights. For example, if a borrower’s breach was minor, if the borrower tried in good faith to avoid the default, or if there was fraud, a court may not allow a lender to take enforcement steps.
One of Landy Marr Kats lawyers can help you, if you have defaulted, and your lender has taken enforcement measures.