When you purchase a house, you need a mortgage unless you have the money to pay the full amount of the purchase price. Otherwise, you go to a bank to arrange a mortgage to pay the balance of the purchase price (purchase price minus your down payment).
It is a common practice by banks to take your monthly mortgage payment directly from your bank account. This is called “pre-authorized payment.”
When a pre-authorized payment is arranged with the bank (your “mortgagee”) would take out from your bank account the mortgage monthly payment on the due date of your mortgage.
When your mortgage payment is returned by your bank for whatever reason, your mortgagee would demand a replacement of your returned cheque. If this happens frequently, your mortgagee may stop taking out funds from your account and this is a bad omen.
When your mortgagee does not take out the funds you have in your bank account for your mortgage payments for more than two months, your mortgagee may be in the process of issuing a Power of Sale to take over your property.
Since you have enough funds in your account to cover your mortgage payments, you normally do nothing about it. Doing nothing about it would be a beginning of having a more serious problem.
It would not take long for you to receive a Notice of Sale Under Mortgage from your mortgagee which is a preliminary stage of the Power of Sale process. At this stage, your mortgagee would demand the full payment of your mortgage balance plus legal fees and other related charges.
A good example was a couple whose house was on Power of Sale because they did not care about the funds sitting in their bank account for three months that was not taken out by the mortgagee. They acted only when they received the Notice of Sale Under Mortgage. It cost them an arm and a leg to put their mortgage in good standing as they had to hire a lawyer to represent them plus legal fees of the mortgagee’s lawyer and other related expenses.
When your mortgage payments frequently bounced and your mortgagee stop taking out your mortgage payments from your bank account, be reminded that is a bad omen. You have to contact your mortgagee immediately and to update your mortgage payment arrears promptly before Power of Sale action is initiated to avoid paying unnecessary expenses.
Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.