When you can’t pay your mortgage

This article was written by Linda Rainaldi of the People?s Law School with funding assistance from the Law Foundation of BC.

?The best advice I can give someone who can?t make a mortgage payment,? says lawyer Allan Parker, ?is to talk to the lender right away. If the client has been making regular mortgage payments until then, there?s a good chance the lender will agree to some kind of repayment plan.?

Remember that you have entered into a legal relationship with the lender and you have an obligation to act responsibly about your financial debt. Before meeting with the lender, make an effort to analyze your own financial situation and develop your own strategy for repayment. ?Make it a cooperative effort between yourself and the lender,? says Parker.

If you can?t make your mortgage payments over a short period of time (because, for example, you will be off work for awhile), the lender may agree to let you catch up with the missed mortgage payment(s) over the next few months, or extend the amortization period so as to lower monthly payments in the future.

If you think you won?t be able to pay your mortgage for a long period of time (because of a long term disability, for example), you may need to think about alternatives such as refinancing through a relative or even selling the property.

If you decide to sell your home, you should tell the lender what you have decided to do. Ask the lender to hold off on foreclosure proceedings (taking back the property) so that you have an opportunity to sell the property yourself.

Sometimes there is no equity in your property. (Equity is the value of your property that is more than what you owe.) This can happen when property values have dropped significantly since the time you purchased it, or in leaky condo situations where the cost of repairs plus the value of the mortgage far exceeds the value of your unit. When there is no equity in your home, you may decide there is no advantage to selling it.

?You?re left with deciding on the most appropriate and ?graceful? way to leave your property,? says Parker. This may involve turning the property back to the lender or remaining in the property while the lender goes through the foreclosure process. If you decide to ?abandon? your property and just move out, the foreclosure can proceed very quickly.

Whatever you decide to do, you must understand your legal rights and obligations, as well as those who have guaranteed the mortgage. ?It is best to get legal advice,? cautions Parker. If paying a legal consultation fee is going to be difficult, Parker suggests consulting a free legal advice clinic or calling a service such as the LawLINE.

You might be able to reinstate the mortgage (put the mortgage back in place) if you get the money to catch up your payments after the foreclosure proceedings have begun, and you should understand the timing of the process. ?Most importantly,? says Parker, ?make sure you get notices of the court hearings and procedures from the lender?s lawyer. It?s very important for the borrower to know what?s going on.?

Sometimes there is not enough money to pay back the money you borrowed from the lender even after you sell the property or the lender takes the property back in foreclosure proceedings. In this case, the borrower and guarantor (if there was one) still have a personal debt to the lender.

Again, advises Parker, the best approach is to talk directly with the lender to see if a settlement can be reached. If you are facing personal bankruptcy, the lender may agree to take a lump sum that is less than the full amount owed. You won?t be able to get mortgage financing on another home in the future until you settle this debt with the lender.

For further information, read the booklet on foreclosure called Can?t Pay Your Mortgage? published by the Legal Services Society of B.C.

Allan Parker is a lawyer and the LawLINE Program Manager at Legal Services Society of BC.

The purpose of this article is educational in nature. It is not intended as legal advice. It offers general information only. If you have a legal problem, you should seek professional advice.