If you have trouble paying your 1^st mortgage and have some equity in your home you may be tempted to take a 2^nd mortgage to fix the problem. Will Roger once said “When you find yourself in a hole, stop digging”.  Before taking a 2^nd or 3^rd mortgage, please ask yourself if you are doing just that.

Here is a list of questions you should ask before you are taking a new mortgage on:-

What is the term of the loan – Often with private lenders the term is only a year or two.  If you need a short term fix, a short term loan might be good. But, if after one year the lender will not let you renew and you will not have the money to pay back they are likely to initiate foreclosure proceeding.

What are the upfront costs – These can mount to few thousands of dollars, especially if you are already in financial stress and your credit score is not that great.

What are the payout penalties – Payout penalties can be extremely high. The highest I have seen was 6 month interest.

The most important question to be asked is “Can I afford the monthly payments?”

I am talking to a home owner in the Vancouver area who has 3 mortgages on his property. He has spent thousands of dollars in upfront fees and now he cannot afford the payments so he wants to sell the property. Once the property is sold, he will have to pay penalties on all three mortgages, which will cost him an additional $8,000. Had he asked himself the questions listed above ahead of time he would have probably concluded that selling was his only way out of the hole and would have saved himself more than $10,000 in fees

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What do you think?

You will also have to serve the lender with 2 copies of the filed response to petition and 2 copies of each filed affidavit if any.

If you have been served with a petition and do not file a response, the lender is not obligated to give you notice of the time and date of the hearing of the petition and there will be a hearing without you .

The time frame that you have to prepare, file and deliver a response to the petition is:

• If you reside anywhere within Canada, within 21 days after the date on which a copy of the filed petition was served on you
• If you reside in the United States, within 35 days after the date on which a copy of the filed petition was served on you
• If you reside in the elsewhere, within 49 days after the date on which a copy of the filed petition was served on you

Note: Court forms are available at www.ag.gov.bc.ca/courts/other/supreme/2010SupRules/info/index_civil.htm

I put Phil in contact with an excellent Realtor and within a week he had a very good offer.

Still, the funds were about $10,000 short of what was needed to complete the deal (Realtor fees included). This is when the 2^nd mortgage lender was contacted by Phil’s lawyer. The lawyer negotiated a short sale with the lender and he has agreed to accept $10,000 less than the amount owned on the 2^nd mortgage. The deal has closed this week.

Why did the 2^nd mortgage lender agreed to give up $10,000?  Whenever a property is sold the funds are distributed according to a list of priorities, first in the line is the strata followed by unpaid taxes and utilities, 1^st mortgage lender and only then 2^nd mortgage.  The longer a foreclosure process takes the more debt accumulates. The funds that will remain for the 2^nd mortgage lender go down every day. Also, it was clear that the offered price was very reasonable. It was in the 2^nd mortgage lender’s best interest to accept the offer and walk away with some money rather than cause a cancellation of the deal and end up with much less money after the court orders a sale.

This type of sale is called short sale. A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. It often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. In recent years short sales became very common in the US. But, in Canada they are still very rare for many reasons which I will not go into here.

I’m renting an apartment in Vancouver and I’ve just received ‘petition to the court’. It seems that my landlord has not been paying the mortgage on the place we’re renting. What do we need to do? Should we find a new place to live? Will we get our deposit back?
Are our belongings safe in the flat?

This was my answer:

Even if the bank will eventually sell the place, there is still some time before this happens. Depending on the specific property you still have 2~7 months . Nobody is going to go into the apartment tomorrow and take possession  and I am sure your belonging are safe.

On the legal side, you may read this publication: cantPayYourMortgage.pdf – on page 16 there is a chapter for tenants.

As a first step, I suggest you contact your landlord and ask him if he has done anything to stop the foreclosure. I find that many homeowners solve the problem way before it gets the point the bank needs to sell it. ( You can also refer your land lord to www.ForeclosureHelpBC.com )

I also recommend you call the bank’s lawyer and ask for more details, this may help you understand how much time you have.

This is what email said:

“I am writing this email about Michelle Castillo from Modern Home Solutions. I want to thank you for going the extra mile, as I had a very unusual situation on a foreclosure problem. I phoned and talked to more than a few financial institutions and Michelle was the only one who listened to what I had to say and the dilemma I was in. She worked very hard to pull my property out of foreclosure. The fees were reasonable and She listened to all my problems and then she came thru for me. I cannot thank you enough for everything you have done.  You are my HERO!”

The home owner in this case had a rent-to-own tenant in the property.  The tenant had an option to buy the place for an agreed price within 3 years. He had already done some renovation to the place when he found out the owner had stopped paying the mortgage and that the property was on the verge of foreclosure. He would have lost all his investment and would have to move out.

The owner called in the beginning of March and told me what happened.  She had admitted she have done some mistakes and was looking to fix the problem.

Must admit it took me many hours to come up with a solution. It included:

• Talking the bank’s lawyer and make sure they will approve the new arrangement and allow reinstatement of the mortgage
• Provide 2^nd mortgage to owner to pay arrears owing on the mortgage
• New rent-to-own agreements that allows my company to control the property and make sure mortgage is being paid.
• A promissory note between the owner and tenant that ensure she will compensate him in the future for some of the losses he will still need to carry as a result of these new agreements .

Now everything is back on track and everybody is happy.

M. wanted to know what to expect next.  He was basically trying to see how long he can still stay in the house and he was looking for ideas how to make the process longer. Well, I am not a lawyer and am not a specialist in giving bad advice to homeowners. I actually recommended he cooperates with the realtor. What is most likely to happen if an owner does not cooperate with the Realtor is that the bank’s lawyer will go to court and get an order to show the house with the help of a bailiff. All costs will be charged back to the owner and he will end up in the same place but owing yet another few thousands in legal fees.

Note: If the sale proceeds don’t cover all that is owed, the lender still has a judgment against the owner for the remaining amount. They can try to collect this from for up to 10 years; after that, they can renew the judgment. It is always at the owner’s best interest to minimize the amount owing.

One more thing I have learned from M. Is that the realtor intends to estimate the house value and the asking price by himself after seeing the place. I reminded M. the he has the right to appeal to court if the proposed selling price is too low.

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A private lender would typically provide a home owner in foreclosure with a loan value up to 70% of the property value. Depending on the location the interest rate may be as low as 7%.

If you would like to explore this option, please contact us as soon as possible. Modern Home Solutions is associated with few mortgage brokers that are specialized in providing loans to home owners in foreclosure. The mortgage brokers we work with have a deep understanding of your situation. In addition to providing a new mortgage they may, if needed, talk to the bank’s lawyer to help pause the foreclosure process and save on legal fees and will also work with you to improve your credit score so that you can get a conventional mortgage with a lower interest rate within a year.

If you prefer to look for a new mortgage by yourself make sure you fully understand what you getting into.  For more details check out my post about getting  a new mortgage from another lender.

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One more detail worth mentioning – He also has a line of credit secured by the house and is currently in good standing. I did recommend making every effort to keep this one in good standing. Having one more foreclosure proceedings running in parallel will double the legal fees, clearly not a desirable situation

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The first step you have to take after receiving the petition is to file an Appearance. We find that many home owners are so confused by the legal language of the petition and they tend to completely ignore this very important and simple step.

An Appearance is a one-page court form that, when filed, gives notice to all parties to the proceeding that you want to have copies of all subsequent court documents sent to you.

According to our conversation with the court, filing an appearance can be done by fax. The Vancouver Supreme Court fax number at the time this article is being written is: 604 660-2429 .

You must also send a copy to the bank’s lawyer. The fax number for the lawyer is often mention in the petition itself.

Following is the typical text the is written in most petitions. Read this text to understand exactly how much time you to file the appearance.

APPEARANCE REQUIRED

IF YOU WISH TO BE NOTIFIED of any further proceedings, YOU MUST GIVE NOTICE of your intention by filing a form entitled “Appearance” in the above registry of this court within the Time for Appearance and YOU MUST ALSO DELIVER a copy of the “Appearance” to the petitioner’s address for delivery, which is set out in this petition. YOU OR YOUR SOLICITOR may file the “Appearance”. You may obtain form of “Appearance” at the registry.

IF YOU FAIL to file the “Appearance” within the proper Time for Appearance, the petitioner may continue this application without further notice.

Where this Petition is served on a person in British Columbia, the time for appearance by that person is 7 days from the service (not including the day of service).

Where this petition is served on a person outside British Columbia, the time for appearance by that person after service, is 21 days in the case of a person residing anywhere within Canada, 28 days in the case of a person residing in the United States of America, and 42 days in the case of a person residing elsewhere.

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