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Ontario|Real Estate LawMortgages 411 What if you default on your mortgage? Defaulting on your mortgage can lead to a range of serious consequences. If you are experiencing financial difficulties, before allowing a default to occur, it is a good idea to contact the institution that holds your mortgage.
A mortgage default means that you violated one or several of the terms of your mortgage agreement. Your mortgage agreement is a contract that lists all of the terms and obligations of your mortgage. The most obvious default is failure to make a required regular payment. However, a number of other things can be classified as defaults as well. These include things such as failing to have adequate insurance on your property, failing to pay your property taxes, putting another mortgage on the property, failing to keep the premises in a reasonable state of repair, and selling the property without the bank's consent. Because the home is the bank's security for the mortgage loan, it has an interest in maintaining the home's value. Failing to have proper insurance or failing to pay property taxes, for example, jeopardize the value of the property.
Financial institutions have a number of options once a mortgage has gone into default. The bank or mortgage company may first send you reminder letters or call you. It will usually then send you a demand letter, which demands payment of the outstanding balance. If you still fail to pay, the bank can take possession of the property, and ultimately sell the property under the terms of the mortgage agreement or by foreclosure. Any costs incurred by the bank when selling your home is added to the amount that you already owe.
If you cannot make the mortgage payments, but your home is worth more than the outstanding balance of the mortgage loan, you may want to sell the property. This way, you will be able to pay off the financial institution and still keep the equity which is the difference between the loan amount and the amount you received when you sold it.
If you cannot make your mortgage payments and cannot reach some agreement with your financial institution to deal with the situation, you should seek advice from a lawyer. Your lawyer may be able to delay or prevent you from losing your home.
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