A default can happen in two primary ways; either the borrower misses consecutive mortgage payments throughout the term of the loan, or the borrower is unable to pay back the principal at the end of the term. Let’s discuss each scenario individually.
- Missed Payment – We facilitate all payments electronically. Payments are withdrawn from the borrower’s provided bank account on the first of each month, clear our licensed trust account, and are deposited to the lender on the 7th of each month. The 7 day period of time is required to determine if any payments are returned due to insufficient funds. If so, no action is required from the investor(s). Investors will be notified of the NSF occurrence and our admin team will proactively reach the client to collect the missed payment. Generally, we allow for 30 days of attempted collection (via contact by phone, email and postal mail) before proceeding with a power of sale enforcement.
- The principal is not returned upon maturity – To mitigate against this, we generally send notice to the borrowers 60 days prior to maturity to initiate contact and encourage the borrower to consider their refinance options. At this time, the broker is likely already working with them on a new mortgage deal. (Generally, the mortgage brokerage remains in contact with the client throughout the entire term of the loan.) However, if the client does not have a new loan in place at the time of maturity, the mortgage is considered in default.
Whether a mortgage is in default due to missed payment throughout the term, or inability to repay at maturity, our first course of action is always to determine why this is the case. If the borrower wishes to stay in their home we always prefer to solve their problem and exit the Investor(s) investment with a new mortgage solution. However, in some cases the borrower’s financial situation or outlook has changed, and they can no longer afford to live in their current home. In this case, we generally encourage the client to list and sell the home themselves, and the principal of the mortgage is returned plus interest at the time of sale.
In the rare circumstance where a borrower is not cooperative or simply unable to meet their obligations under the loan, it is important for the investor (s) to understand they have the same rights as the bank, and our staff and legal team is capable of selling the property as stipulated by Ontario law using power of sale to recuperate the lender’s principal. It is important to understand that our business exists to facilitate loans from real people to other Canadians and that one’s inability to meet their mortgage obligation is generally a result of financial hardship. We often request patience on the part of our investors as we work towards a win-win solutions. All the while we recognize that protecting the principal of our investors is paramount and remains our single biggest priority.