Dear David,
We purchased our condo three years ago and have since had some financial challenges, including a job loss and a special assessment from our condo corporation. We can’t afford to stay in this property and are currently three months behind in our mortgage payments, condo fees and utilities. We hoped our financial situation would improve, but it hasn’t. To top it off, our Realtor says the condo may be worth 20 percent less than it was when we bought it. We’ve heard about filing a consumer proposal or returning the keys to the bank. Should we consider these options? What happens if we fail to catch up on our mortgage and condo fees? – STRUGGLING
DEAR STRUGGLING: Hope is not a strategy. People sometimes stay stuck in tough situations hoping a job will be found, income will improve or property values will recover. At this point, you are three months behind on your mortgage, condominium fees and utilities, and you need to do something before the situation gets even worse.
“Giving keys back to the bank” does not typically eliminate your financial responsibility. In Ontario, the lender may begin a power-of-sale process to sell the condo and apply the proceeds to your mortgage, interest and debt, but if the sale doesn’t fully cover what you owe, you’ll still be on the hook for the shortfall.
Power of sale is a costly and lengthy process. Legal fees, interest, property management bills, repairs, insurance, real estate commissions and other expenses will be added to what you owe, and if you fail to cooperate with the lender, things get even more expensive.
Contact your lender immediately. Ask if they will agree to a temporary repayment arrangement, or give you the chance to list and sell before they start formal enforcement proceedings. Working co-operatively with your lender may offer you more control over timing and costs compared to a lender-directed sale. And if there is going to be a shortfall, you’ll need the lender’s cooperation.
A consumer proposal is intended to address unsecured debt; it does not generally change the terms of a secured mortgage if you keep the property and continue making payments.
It’s important not to wait for the bank or condo corporation to make the next move. At this stage, doing nothing is a decision, and likely the most expensive one.
PRO TIP: Speak with your bank before you inadvertently force its hand, and let the condo corporation know you have a plan in place. Your lender may be prepared to let the sale proceed with a shortfall if you arrange in advance to repay the shortfall after closing. Acting early can help protect your credit, and could save you tens of thousands of dollars compared to entering the formal power-of-sale process. #Advice #AskDavid #TheNegotiator