Going through a foreclosure has been quite an eye opening experience for me and I felt it was a story that needed to get told.
Ultimately, it comes down to my responsibility to make good on the terms and conditions of a mortgage that I signed for, but going through this has helped me understand how little control property owners have and how much the banks control your life.
Again, to recap ( you can start the story here, Foreclosure in Alberta) , I had a rental property that generated positive rental income that was coming up for renewal. Unfortunately, for me, the lender decided they didn’t want to renew leaving me with a property that had dropped in value enough that it was worth less than the mortgage and in the end a big problem for me.
I had a couple of options, sell it and pay the difference between the mortgage amount and the sale value, or get a new mortgage. To get a new mortgage I would need to put down 25% or more of the current value which meant throwing another $70,000-80,000 on a property that would likely take five years to get back to even on.
Additionally, due to our company split with a former partner that dragged on for two years, I most likely wouldn’t even be able to qualify, creating an even bigger challenge. So at this time it appeared more effective to list it, take the $20,000 loss and move on.
To fast forward, after having the property listed for almost three full months, we finally sold it, but at an even lower price than anticipated and with over $6,000 in legal costs from the foreclosing lawyer alone! I’ve been hesitant to tell how much this cost me, but in the effort to make full disclosure I need to bring it up.
So I went from having a property that only about six months prior was making me a few hundred dollars a month profit, we had never missed a payment in the three prior years of the mortgage, the property was in very good condition (as per the bank’s appraiser) to having to go through the foreclosure process and paying over $50,000 to sell the property, pay the lawyers, pay the Realtor and deal with renovations, miscellaneous costs and this doesn’t even include the time involved!. A $50,000 loss, all because this particular lender didn’t want to renew, can you see why my opinion of banks has lessened?
Now fortunately I was in a situation where I could cover this (not without some significant pain), but what if this was a normal homeowner? Now we have talked to other people since (even a mortgage broker), who insisted the lender has to renew if you have never missed a payment and everything is current, but it’s simply not true. Legally the bank does not have to renew, it’s just never been an issue when property values had been continually going upwards, so while they didn’t have to renew, it became standard policy to just allow people to renew, although based on current mortgage rates.
So who are the people in most jeopardy right now? While highest on the list are other landlords, but there are many homeowners who also purchased in the 2007 time frame with three or four year terms on their mortgage that may find themselves in similar situations this year or next.
While the lenders have every legal right to protect themselves from potentially being stuck with a property that is mortgaged up to its current value or higher, where does this leave the mortgage holders? Is the system setting itself up to create bigger repercussions down the road? If a homeowner finds himself stuck with a potential $50k cash hit and they don’t have it, would bankruptcy be a better option so they can walk away from other debt as well?
If they do decide to go into bankruptcy, they can walk away from the debt, leave the bank with the property and avoid a loss like I took. Meanwhile allowing other creditors also stuck taking a loss. So who would that affect?
I guess as long as the bank and the shareholders don’t get hurt everything’s OK? Perhaps I am off base here, but am I wrong to think that perhaps the banks (many of whom were directly involved in much of the initial financial crisis), should be helping people through tough situations, and not making it worse? I know, I may be living in a rose coloured idyllic world, but can’t I dream too?
The big lesson to learn from all of this is as long as you don’t own the property out right, you don’t have control of the situation. Banks can change their processes, how they deal with clients and situations and the clients are powerless. Mind you I am writing this from a slightly skewed state of mind! So while it’s unlikely this will ever occur to the majority of the population, individuals like myself who invest heavily in Real Estate definitely have to be aware of some of the trials and tribulations to that hit us during some of the economic swings that occur in the long cycle of holding investment property.
And in case you were curious, because we sold the property prior to the Stay Order no longer being valid, we avoided having a foreclosure on our credit history. So in another year, once we get all our taxes, company split up paperwork all finalized and figured out, we can go back out and theoretically let the banks drag us through this again!
Maybe its time to Nationalize our banking system. Have gov’t run banks or lets make our representatives put in legislation that we want. Common sense legislation. No calling in mortgages if payment agreements are being met. Time for the people to wake up and take back our country.
I don’t think nationalization would be the correct approach as it would cause other issues, but perhaps putting more responsibility on the banks themselves. Mortgage holders have to jump through hoops to get a mortgage, have to pay excessive payout penalties if they want out and then bear all of the risk. The lenders spend so much time reducing all of their risk that they can walk away for virtually any reason.
If the homeowner or investor has to put that much effort into getting the mortgage, shouldn’t the lender have to put some effort and responsibility to ensure they can continue to lend on it? With CMHC mortgages it was zero risk for the lenders as they can simply recover any losses via the insurance which ultimately comes back to the tax payers. With non-CMHC there should be less risk, except for the larger than normal price decreases we saw, so in that case they are simply bailing on the homeowners. In my opinion anyway!
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Hi, I just want to thank you for posting this blog. It is a great sense of relief to know that I’m not the only one going through the same situation. Although I am not a landlord my issues have been identical. Bought high in 2007, then the mortgage co. did not want to renew (NBrook or NBMH) at 5 years. All of my payments had been made but my credit was not great as I struggled to pay other bills and my mortgage was at a high percentage, 7.5, for 5 years. My mortgage matured Aug. 30, 2012 and the last mtg payment they took was Sept 1. They asked me to sell and offered to only receive 135000 even though my mortgage due was 154000. They acted like they were doing me a favor yet they would not allow me to use my own realtor. When the listing contract came for me to sign, their realtor listed the condo at 144,900. I paid 226,000 in 2007. I forgot to mention that Nbrook offered to give me a second mortgage with a different primary lender for one year. I didn’t realize the percent would be so high as you’ve stated, but in the end the appraiser they sent, who I had to pay for appraised the place at 16000 but had heard there was a large assessment coming. So NBrook backed out of their offer after hearing that. My lawyer recommended I foreclose as there is no equity and I can’t afford to pay all the fees that would come. It is now Dec. And I have received a 24 hour notice requesting that I report how many people live in my unit. I have a place to move to but am feeling very nervous I may not get all my stuff out in time. Thanks for posting your friends site. That is where I will search next to find out what’s still to come in the next few days. I think its great that you’re educating homeowners. If I had known this would be my outcome I would have never asked a best friend and loving family to help place 25% down when I bought.
Hi,
It sounds like you’re going through quite the ordeal. On the positive side you have much more time than you think at this point. If you have a written offer from them for $135,000 you may be in a good situation to get the discounted amount. Once they make the offer, it will hold unless they have put sometime of timeline/expiry date on it. If it was just verbal, you would be out of luck.
Also they shouldn’t be able to restrict you to their lawyer as it’s still your property. Your lawyer should be aware of that, unless there are some other factors that have been missed out on.
Your best bet is to find someone who can guide you through this who is extremely well educated in the foreclosure rules. While there is no chance you will get what you put in back, you should still be able to realize that $20,000 discount they offered which at the very least would allow you to escape without the foreclosure on your credit history.
The rules with the foreclosure system, while confusing, are fairly well laid out, so if you can find osemone who specializes in foreclosures they should be able to help.
Regards,
Bill