6/21/2023 0 Comments Deficiency judgmentThere are situations where the purchaser does not realize that they have assumed an insured mortgage. However, it is not only the prior owner who is at risk. The insurer may pursue payment from the previous owner of the house, who may have no viable option but bankruptcy. Often that is not the person who has defaulted on the mortgage. The lender obtains a judgment and assigns it to the insurer, who then often looks for the party with the deeper pockets. If the new owner assumes an insured mortgage (takes it over from the prior owner) and fails to make the mortgage payments, both the prior owner and the new owner can be sued and found liable for any deficiency. To many homeowner’s surprise, selling their house does not necessarily relieve them of liability for the mortgage. Deficiency Judgment “Surprises” will Return The coming wave of foreclosures may well match or exceed that one. Trying to estimate the value of a house in foreclosure in such a market can be a guessing game.Īlberta has been through this scenario a number of times, the worst in memory having occurred in the early ’80s. The real estate market often ends up with depressed prices and there is a glut of homes offered for sale either by desperate owners or because of the foreclosure process. The most common scam used in a downturn is an offer to buy the home of a borrower in financial distress.In a downturn, as job losses mount, more and more homes go into foreclosure. In time, the owner will often sell the house and either pay off the mortgage or the new buyer will assume it. In a strong economy, as long as the price of the home increases and the owner can make the payments, things carry on. If the property is worth less than the mortgage, the borrowers will lose their home and still owe the deficiency. With an insured mortgage there is personal liability for a mortgage deficiency. Traditionally only CMHC offered that insurance, but there are now two other insurers: Canada Guaranty and Genworth. As a result, the lender requires the borrowers to pay for mortgage insurance. ![]() ![]() ![]() Lenders grant insured mortgages when the homeowners do not have a sizeable down payment to buy their home. The same is not true of insured mortgages. If the property is worth less than the mortgage, the borrowers will lose their home but can walk away owing nothing more. A deficiency is the difference between the amount outstanding on the mortgage and the value of the property. Generally in Alberta, an individual is not liable for any deficiency resulting from a foreclosure on a mortgage on their home. A Wave of Foreclosures and Judgments against Mortgagors Those six months are now mostly up, leaving the question of what will happen next? From my time practising foreclosure law in the early ‘80s, and my 14 years as a Master on the bench hearing foreclosure applications, here is what I think is likely. This was the highest uptake of the deferral offer of any province in the country. The CBC recently reported that Albertans took lenders up on this offer and deferred more than 1 in 5 CMHC-insured mortgages.
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