Foreclosure while in active consumer proposal
I am in an active and in good standing consumer proposal with approx. 1.5 years left. After separation, my former husband took full financial responsibility for one of our homes. I was unable to remove my name from the mortgage, as he had filed bankruptcy. He has defaulted on the payments and the property is now in foreclosure. Of course, I am now being pursued for his delinquency. The lawyer for the bank made a comment that I am interested in. He stated that his “client has no way to pursue the debt, as long as it is in good standing (referring to the fact that I am in a consumer proposal)”. He refused to elaborate and strongly suggested I seek legal advice, which I am doing as well. Any idea what this meant?
1 Answer
If you examine your consumer proposal carefully, Paragraph 1 of the proposal should state the following:
The secured creditor(s), if any, will be paid in accordance with the arrangements as may be mutually agreed between the debtor and the holders of the secured claim.
In plain English, this means that so long as the mortgage payments are in good standing, the bank cannot do anything against you. But now that the mortgage is in default, the bank will exercise power of sale proceedings (or foreclosure if you are in Alberta – power of sale and foreclosure are two different things).
In the case of power of sale proceedings, the bank sells the property and applies the sale proceeds against the remaining mortgage balance and their legal costs in dealing with the property.
If there are insufficient proceeds from the sale to pay off the mortgage balance and the bank’s legal costs, there will be a shortfall. And you may very well be on the hook for the shortfall because this liability came into existence AFTER your proposal was filed. That is, it may be considered a post-proposal debt that you may be on liable for.
It’s best to meet with your Trustee and discuss this with him or her.
Your Answer
1 Answer
If you examine your consumer proposal carefully, Paragraph 1 of the proposal should state the following:
The secured creditor(s), if any, will be paid in accordance with the arrangements as may be mutually agreed between the debtor and the holders of the secured claim.
In plain English, this means that so long as the mortgage payments are in good standing, the bank cannot do anything against you. But now that the mortgage is in default, the bank will exercise power of sale proceedings (or foreclosure if you are in Alberta – power of sale and foreclosure are two different things).
In the case of power of sale proceedings, the bank sells the property and applies the sale proceeds against the remaining mortgage balance and their legal costs in dealing with the property.
If there are insufficient proceeds from the sale to pay off the mortgage balance and the bank’s legal costs, there will be a shortfall. And you may very well be on the hook for the shortfall because this liability came into existence AFTER your proposal was filed. That is, it may be considered a post-proposal debt that you may be on liable for.
It’s best to meet with your Trustee and discuss this with him or her.