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Mortgages & bankruptcy

mortgage and bankruptcy in Thunder Bay

If you are in Thunder Bay or NW Ontario and are unable to pay your mortgage, the lender will be able to sue you and eventually foreclose on the home.

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

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 lender because the proceeds from the sale of the house are not sufficient to repay the mortgage - the lender will obtain a judgement 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.

As well, 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 house or from realizing on the borrower's personal covenant, then the lender can call on the guarantor to repay outstanding arrears.

If a mortgage deficiency judgement is the only debt which you cannot manage you might consider trying to negotiate a settlement with the insurer that will avoid bankruptcy.

If you have an insured mortgage and cannot make a mortgage payment and it is unlikely you will be able to catch up, or the lender has a judgement, here are some helpful contacts:

CMHC
Claims Payment Centre 1.866.358.9999

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

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

If you make an assignment into bankruptcy in Thunder Bay or Ontario, your 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 and/or liens). If there is equity in your residence you will be required to pay this equity to the Trustee.

However, if there is house equity, under the condition that you contribute the amount equal to the equity into your bankruptcy (perhaps by borrowing from family or getting a second mortgage - which is difficult if you are bankrupt); 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 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.

If you are unable to pay into your bankruptcy the amount of your equity, you may be forced to sell your home in order to generate the necessary funds. The amount of home equity is generally required to be paid into the bankruptcy, so sometimes the sale of the house occurs. If you do own a house with equity, instead of going bankrupt and losing it, another option is to file a consumer proposal so that you can keep your house.

Clearly this is a complicated area, so if you own a house, are having trouble paying the mortgage, and are considering filing for bankruptcy in Thunder Bay or Northwestern Ontario, you should speak to one of our professionals at Grant Thornton at 310-8888 for a free, no obligation, confidential consultation.

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