What Happens If You Default on Your Mortgage in British Columbia?

Missing a mortgage payment, or knowing you are about to, is stressful. The good news is that default does not mean you lose your home overnight. There are usually options to discuss with your lender, and court steps come later.

This article explains in general terms what default means, what the lender can do, and what relief may be available. Your own mortgage contract and circumstances matter a great deal, so consider getting legal advice early.

This article covers the law of British Columbia.

What counts as default

Default means you have broken a term of your mortgage contract. The most common example is missing payments, but a mortgage can also set out other obligations. Read your mortgage documents to see exactly what they say, because the contract defines what counts as default.

Unpaid interest is generally added to the balance, and interest then accrues on it. A mortgage cannot impose a fine, penalty or rate of interest that increases the charge on arrears beyond the rate payable on principal not in arrears.

Talk to your lender first

If you cannot make your payments, contact your lender as soon as possible. Options may include:

• Payment deferral, usually up to 4 months.
• Extending the amortization.
• Capitalizing arrears, which means adding them to the mortgage balance.
• Interest-only periods.
• Special payment arrangements, or blend-and-extend.
• A sale-by-borrower plan, usually 90 days or less.

These measures may increase the total cost of the mortgage over its life. Ask for the terms in writing and ask what the arrangement will cost you in total.

Guidance for federally regulated lenders expects them to proactively contact borrowers at risk and discuss relief for principal residences in exceptional circumstances. That guidance does not bind non-federally regulated lenders such as private lenders. If your lender is private, do not assume the same relief will be offered, and consider getting advice sooner.

What can happen if default continues

In British Columbia, a foreclosure or redemption proceeding must be started by petition in the Supreme Court under Rule 21-7 of the Supreme Court Civil Rules. The court can set a redemption period, take an account of the amount owing and daily interest, decide priorities, order a sale and grant further relief.

The court also has powers that can help borrowers. Where a default makes payment due earlier than it otherwise would be, the court may relieve a person from the consequences of the default, despite a contrary agreement. The court may also relieve against penalties and forfeitures and attach conditions. Whether these apply depends on your facts.

In a foreclosure action, the court may direct a sale of the property on terms it considers just, as an alternative to foreclosing the right of redemption. How a petition unfolds is described in the next section.

How a foreclosure petition works

The person who serves the petition must include the informational notice in Form 125. Anyone whose interest is to be extinguished must be made a respondent, and respondents may file a response to petition. If you are served, read every page and do not ignore the deadlines in the documents.

If the respondent does not pay within the court-ordered period, the petitioner may apply for a final order of foreclosure. There is an alternative to simply waiting out that period: a party of record may apply at any time for an order that the property be sold rather than foreclosed. Before the redemption period expires, the person with conduct of sale may apply for an order confirming the sale, directing the proceeds and vesting title in the purchaser.

For agreements for sale, the Law and Equity Act sets redemption at 6 months unless the circumstances justify a shorter or longer period, and the court may extend a redemption period before making an order absolute. For ordinary mortgages, the period is set by the court, so the length in your case depends on the facts.

• Practice Direction PD-66 requires in-person attendance for foreclosure proceedings in regular chambers, and Rule 21-7 applications other than approval of sale may be in virtual chambers.
• A respondent who pays the amount due may serve a notice to assess costs, and if the petitioner does not file a bill of costs within 14 days, the petitioner loses entitlement to costs.

If you are thinking of selling or refinancing

Paying out a mortgage early can trigger a prepayment charge. It is usually the higher of three months' interest on the remaining balance or the interest rate differential. In one example with a $200,000 balance, a 6% rate, a 4% posted rate and 36 months left, three months' interest is about $3,000, while the interest rate differential is about $12,000.

An open mortgage allows prepayment without penalty, and prepayment privileges can be used without penalty, though unused amounts usually do not carry over. To limit a penalty, you can use prepayment privileges, ask about porting the mortgage to a new home, or wait until the term ends if the penalty is large. Ask your lender for the charge in writing before you decide.

What to do now

• Gather your mortgage contract, recent statements and any letters from the lender.
• Write down your income, expenses and what you can realistically pay.
• Contact your lender promptly and ask which relief options apply to you.
• Keep a record of every call, offer and deadline.
• Do not ignore court documents. If you receive a petition, get legal advice right away.
• Ask a lawyer or accountant about the long-term cost of any arrangement.

Frequently asked questions