Many Canadians are drowning in debt. High owe, high owe seems to be a familiar tune many are singing. Even when it comes to investments in real estate — the family home included — debt to earnings ratios are at an all-time high. When the housing market crashed in the United States, many homeowners simply left their house keys in the mailbox and walked away. But mortgages — even though they vary from province to province — come with full recourse, meaning lenders can take mortgagees to civil court to try to recoup their losses.
Because of the stringent rules, it is unlikely Canada will ever see a real estate crash like that of its southern cousins. The legal risks to borrowers who try to simply walk away are just too great. However, legislation around bankruptcy in Canada overrules a mortgagor’s right to sue for what’s owing on the mortgage. So, those who successfully complete a personal bankruptcy are off the hook.
When a Canadian citizen files for bankruptcy under a Licensed Insolvency Trustee any shortfall of funds for any debt — including a mortgage — is considered an unsecured debt. It is discharged once the lender files a proof of claim. The lender has no other choices.
Another positive is that banks do not wish to own homes, and Canadians who are finding it financially difficult will usually be able to work with their lenders to continue paying their mortgages. If mortgage payments continue to be made after working out a plan with the bank, homeowners needn’t think about bankruptcy. The American equivalent of jingle mail can be avoided.
Real estate matters in Canada can be extremely sophisticated and complex. When it comes to making any deals, it may be wise for Canadians to have any documents checked out by a lawyer experienced in real estate law. It is always better to have legal guidance to ensure financial interests.
Source: moneysense.ca, “How Canadians could walk away from their homes if house prices fall“, Scott Terrio, Nov. 6, 2017