Podcast Episode 8: “Mortgage Basics 8/9 – True and False 2.”
The episode continues with the FAQ about mortgages. If lenders can’t pursue deficiencies when an Alberta walks away from their mortgage, are there other repercussions? How does assuming a mortgage from a corporation change liability for an individual? Listen (or read) on to find out!
Mortgages: True or False
More fun with true and false questions:
Question # 4: I have a conventional mortgage in my personal name on a non-performing property. I intend to walk away from the property because I know that I won’t be liable for any deficiency. I think this is a good solution to my financial difficulties.
Answer: False. Just because the lender can’t pursue you doesn’t mean there aren’t other consequences. At the very least your default will be reported to the credit bureaus, likely resulting in the worst credit score possible and severely limiting any future borrowing.
Question # 5: My corporation took out a new mortgage to purchase an investment property. I then personally assumed that mortgage with the lender’s permission and continue to rent it out. Times are tough and I can’t sell the property for enough to pay off the mortgage. Any sale will be at a big loss. Dude says not to worry because the property is now in my personal name and a lender cannot enforce the personal covenant.
Answer: False. Remember we said that Alberta law was complicated! Amendments to the Law of Property Act created “an exception to the exception” in section 43 that a lawsuit on the personal covenant was possible where the original borrower was a corporation. When you assume a mortgage from a Corporation, the lender can still enforce the personal covenant unless the property is your personal residence or that of a member of your family.
Question # 6: I lent money from my RRSP on a second mortgage and now the borrower is in default and not paying the mortgage. I’m concerned because I’m not sure if my trustee will start a foreclosure action on my behalf and protect my interests.
Answer: True. Your trustee probably won’t do anything for you. They may not even advise you that the mortgage is in default. You need to supervise your RRSP mortgages carefully. If the loan goes into default you will have to hire a lawyer and start a foreclosure action. If the first mortgage is also in default the first lender can foreclose the property and wipe out your position unless you take action.
Question # 7: I carefully monitor my RRSP second mortgages just like you told me to and I see that one of them is in default. I know the borrowers and they are good people. They’ve missed a couple of payments but say they can catch up in three months. I don’t think there is anything to worry about.
Answer: False. You should be worried! It’s an almost 100% rule; things always get worse, they never get better. Consult legal counsel immediately and take action. If your borrower pays you out, you can always stop your lawsuit.
Question # 8: I sold a property last year but had to accept a vendor-take back second mortgage to finance the deal. Now the buyer has defaulted on the payments. I don’t think I should do anything because I’m sure that the first mortgage lender will sort it out.
Answer: False. The first mortgage lender doesn’t care about you or your mortgage because they are first in line. Their foreclosure costs could eat your equity position alive. You need to take action to protect your position by consulting a foreclosure lawyer.
Let Barry take care of your Alberta mortgage problems. Contact him now!