My Client purchased his first home by struggling to save the down
payment. He took odd jobs whenever he could, and banked all the extra
money he earned. He successfully became a home owner on September
1, 1996 through the auspices of one of the major Canadian Banks and CMHC.
Circumstances beyond his control now has him on the verge of losing his
house, and his credit rating.
Shortly after the purchase, he went through major (elective) reconstructive
surgery on his wrist and hip. He had endured a first series of operations
in 1991, fully insured through his work. This time though, the insurance
company took four months to analyse whether they would cover the operation.
To everyone's great surprise, the claim was denied. Like most people,
he was a couple of pay cheques shy of bankruptcy. Since he did go
through the surgery, he could not work so everything fell behind, including
the mortgage.
He applied to EI (employment insurance) who retroactively paid him
55% of his regular earnings. He brought the mortgage into good standing
in August, 1997 . From September to December of the same year, still
on EI benefits, he struggled once again to keep all his creditors at bay.
He paid what he could on the mortgage, but did not consider house insurance
a priority until he found out he was in default of the mortgage covenants.
The mortgage company insists on having fire insurance on the property and
if you attempt to go without, the insurance company tells your mortgage
holder who immediately takes corrective actions. This could include foreclosing
on the home. He received a demand letter on May 14, 1997, asking
for full restitution of the mortgage debt (where was he to find $130,000?),
because according to their information, there was no insurance. As
soon as he got the letter, he rushed out to make arrangements for the home
insurance. The Insurance Company failed to advise the Bank that the
home was indeed covered.
He now finds himself $4500 behind (3 months' of mortgage payments,
insurance costs and legal costs). Part of the demand letter
stated a phone number to call. He did try several times to call that
number. He kept on getting a funny busy signal, which was really
a fax transmission signal. On his own initiative, he went into his
Bank Branch, who was able to track down the person who wrote the letter.
He offered $2500, all the money he had in the world, which was immediately
refused. He and his Mom called me for help.
The situation was indeed a comedy of errors. First he and his
employer thought the insurance company would cover his salary during his
convalescence, then he thought that fire insurance could wait until he
had enough cash, then he was given a wrong number, then they refused his
$2500. To make matters worse, not even I could find him another lender
because this was a CMHC insured high ratio insured mortgage, which was
indeed in default. Any other lender would have scoffed at a transfer.
I had to convince the existing lender that our Client was not a flake.
Their big problem was that this was the second time that he had been in
arrears. Because it was a CMHC insured mortgage, they had to explain
to the insurer what actions they were taking to remedy the situation.
Any account that falls behind three payments is normally actioned through
a demand letter (which he received), followed by a forced sale of the property.
This would devastate our Client, since he worked so hard to achieve home
ownership.
Although the Bank cannot be blamed for causing the arrears, communication
was indeed a problem. Our Clint wanted to retain his home, credit
rating and pride.
I explained as best I could by letter to the Bank in question.
I asked them again to consider the offer of $2500, made in good faith.
We also requested that they re-amortize the missing payments, and change
his payments to monthly rather than bi-weekly, to correspond with his insurance
cheques. It certainly was not his intention to default, circumstances
beyond his control triggered the proverbial snowball. He is now back
on track, and we felt certain he could maintain his account in admirable
fashion, given the chance.
The immediate response was positive, given that we sent a copy of the
correspondence directly to CMHC and that we had answered all the questions
before they were asked. I explained to our Client that we were successful
this time, but if circumstance reared its ugly head again, that he was
now out of ammunition, no matter who's fault. Protect your credit
rating, and read all the fine print on the mortgage contract. Knowledge
can be salvation.