(Photo credit CBC)
What happens when you own a home and suddenly get laid off, downsized or flat out fired? Or maybe you still have a job but are getting less hours and/or a lower amount on each paycheque. Just because you no longer earn any money (or find yourself earning less) doesn’t mean that the bills will go away and one of the biggest bills a homeowner will have to pay each month is the mortgage. Sadly for a lot of Albertans and of course Canadians throughout the country, that may mean the bank will foreclose on that housing loan.
In the last two years alone, foreclosures have gone up about 25% each year in Alberta which translates to 5,746 properties across the province, 2,277 of which were in Calgary alone. While these numbers may seem alarming (whenever anything goes up that fast that quickly it tends to be alarming), the numbers are not as high as they were after the 2009 financial crisis when many people found that their subprime loans weren’t all they were cracked up to be.
The number of people missing mortgage payments is also on the rise across the province. A three year high was reached this past February when 2,736 mortgages were in arrears by three months or more. In some cases, people are six to nine months behind.
This time around the foreclosure rate is largely blamed on the loss of jobs– people either finding themselves unemployed or underemployed– coupled with a high debt load. When things are good, we tend to treat ourselves to things; when things go badly, we still have to find a way to pay off those credit cards and minimize our debt. While things may be looking up in the city of Calgary job wise now, the city still has the largest unemployment rate among Canadian major cities; today it sits at 9.3%.
Banks and other financial institutions are, by law, allowed to start the foreclosure proceedings if you miss just one payment. Thankfully most don’t act that quickly and will be eager to work with the homeowner to get them back on track so that they can try to avoid the whole process from occurring at all. That is, if the homeowner faces the issue and doesn’t pretend it’s not happening or it doesn’t matter if they fall behind on the payments.
For homeowners who have fallen behind, the experts say the best thing to do is to be open about it with your lender. If you show up to meetings and work with the institution to come up with a repayment plan, or if you have a plan of your own worked out, lenders will be more willing to allow it to pan out before starting foreclosure proceedings. In some instances, you as a homeowner will be allowed six months to figure it out and start the repayments.
If the foreclosure proceedings advance and it does end up in a court of law, it will likely also be the homeowner who is on the hook for the bank’s legal fees and that can run anywhere from $6,000 to $8,000.
As if losing your home and paying extra legal fees weren’t enough, the experts also agree that foreclosure should be the last resort as it can damage your credit and prevent you from buying another property for a number of years.
Sometimes, however, foreclosure is the only option and those properties are then put back onto the market so that the lenders can get some of their money back. In Calgary, some realtors will list foreclosed properties separately from others for sale. The reason is simple: foreclosed properties are sold ‘as is’. That is, they have no warranties and no representations. While they may sell for less they are usually listed close to their true market value, so buyers may get a deal, but it won’t be a major fire sale like we see coming out of the United States at times where their laws differ. If you are thinking of scooping up a foreclosure for dirt cheap you may not find yourself in much luck, as the bank will want as much out of the property as they can get.
In Calgary, a shrewd buyer can find anything from $150,000 condos to multimillion dollar mansions on the foreclosure list. Just make sure that you know what you’re getting into as you have nothing to fall back on should you purchase one and something goes wrong. If the former owner trashed the home, it will be up to you to fix it, not the bank. They just want to sell it and move on.
If you find yourself in dire financial straits and are falling behind on your mortgage payments, don’t bury your head in the sand and hope it will go away. It won’t. Instead be upfront and honest with your lender, you may be surprised at the clauses that are built into your loan that you may not have known about that will allow you to come up with a solution to the problem. Help may be just a simple phone call away.