You've Received Foreclosure Papers. Now What?

Falling behind on a mortgage is stressful. Sometimes the default arises from missed payments. Sometimes the mortgage has matured and cannot be paid out at the end of the term. In other cases, additional borrowing secured against the property has made the debt load unmanageable.

Then a package from the lender arrives, often including letter from the lender's law firm demand payment and acceleration of the mortgage, and a Notice of Intention to Enforce Security under the Bankruptcy and Insolvency Act.

At that stage, doing nothing or ignoring the demand is usually a bad idea. In many foreclosure matters, the practical solution is not trying to move the matter to a trial or aggressively litigating or fighting back against the lender. The matter is often resolved through one of four routes: bringing the mortgage back into good standing, refinancing, selling the property, or negotiating for more time.

Once the notice of intention to enforce security expires, the lender may commence foreclosure proceedings in the Supreme Court of British Columbia, register a certificate of pending litigation against the property's title, and proceed with serving the borrower, any guarantors and other interested parties who are registered on title.

That period between receiving enforcement documents and the formal court process is critical. It is often the borrower’s best opportunity to assess their options and make a well-reasoned decision about the path going forward.

Common options for borrowers facing foreclosure

1. Reinstate the mortgage

If the default arose from missed payments and the mortgage has not yet matured, it may be possible to cure the arrears and ask the lender to restore the mortgage to good standing.

In some cases, that can be negotiated directly with the lender or their legal counsel. In others, an application to court will be required. Whether reinstatement is realistic outcome will depend on the mortgage terms, the nature of the default, the lender’s position, and the borrower’s ability to maintain payments going forward.

2. Refinance the debt

Refinancing is often a practical way to stop a foreclosure proceeding. A new lender pays out the defaulting mortgage, and the borrower replaces the problem debt with new financing.

That said, refinancing is not always a good outcome. Borrowers should be cautious about accepting financing with unsustainable interest rates, excessive fees, or repayment terms that simply postpone the problem for a few months at a much higher cost. A refinance should solve the underlying problem not make it worse.

3. List the property for sale and seek time to redeem

In many cases, the borrower’s best option is to sell the property in an orderly way rather than allow a distressed process to unfold.

Borrowers retain a right to redeem during the foreclosure process, and the court will often grant a redemption period where there is a realistic prospect of sale, with a standard redemption period of six months, provided there is sufficient equity in the property, it is being properly maintained, and the lender is not materially prejudiced.

4. Negotiate a forbearance arrangement

Sometimes the immediate goal is simply more time. A lender may agree to a temporary forbearance arrangement in exchange for conditions such as a payment plan, a partial paydown, updated financial disclosure, additional security, or agree to a consent Order NISI setting out the next steps.

Not every lender will agree to a forbearance agreement. Even where one does, the borrower should understand exactly what is being conceded and what happens if the agreement is breached and the concessions provided verses simply obtaining a standard six month redemption period.

5. Defend the foreclosure process where there is a basis

Not every foreclosure file has a defense, but some are worth close review. Potential issues may include errors in the amount claimed, improper notice, problematic default interest provisions, unenforceable penalty terms, accounting irregularities, or other defects in the lender’s materials.

Even where there is no substantive defence to the debt itself, legal counsel can still play an important role by reviewing the documents, communicating with lender’s counsel, ensuring the maximum redemption period is available in the circumstances, and bringing court applications for extending the redemption period, or argue that the foreclosure proceeding should not proceed in a summary way and bring an application to convert the initial Order Nisi to a trial.

Early advice matters

Foreclosure is not a one-size-fits-all process. Residential properties, commercial properties, and development lands raise different risks and different considerations around whether to sell or refinance. In the commercial context, lenders may decide to forgo the foreclosure process altogether and seek to have a receiver appointed instead. In the residential context, receiverships are rare or seldom used and often residential foreclosure matters will follow a streamlined and predictable path.

The borrower’s position may also be affected by personal guarantees, tax issues, or other charges registered against title. For many borrowers, the most important step is not “fighting” the foreclosure. It is understanding the available exit paths early enough to preserve them and the tools available *The information in this article is provided for general educational purposes only and does not constitute legal advice. Foreclosure matters are highly fact-dependent. You should not rely on this article as a substitute for legal advice about your particular circumstances. Contacting Reedman Law or reading this article does not create a solicitor-client relationship.

About Reedman Law Reedman Law is a Vancouver-based insolvency and litigation boutique. The firm advises on bankruptcy, restructuring, foreclosure and security enforcement matters, directors’ liability, fraud-related disputes, and commercial litigation. Reedman Law acts for borrowers, debtors, business owners, and other clients who need advice and representation in financial-related disputes and financial distress situations.

About the Author **Cody Reedman is the founder and Managing Lawyer at Reedman Law and practises in bankruptcy, insolvency, restructuring, foreclosure law, and commercial litigation. He has extensive experience advising clients in financial distress, including representing borrowers in responding to secured enforcement proceedings, bankruptcy matters, and commercial insolvency and bankruptcy litigation.