Give me back my money, now!

Have you ever owed someone money? Has someone ever owed money to you?

You may already know this, but there are rules that have to be followed when collecting a debt.

Typically, a “collector” cannot start a lawsuit to recover a debt unless the “debtor” (the person who owes the debt) has been given NOTICE that the collector intends to start a lawsuit (to collect the debt). See section 15 of the Business Practices and Consumer Protection Act.

So, what constitutes “notice”? Well, it is often a demand letter. See Waldron v. Royal Bank (1991), 53 B.C.L.R. (2d) 294 (BCCA).

That’s not the only rule… There are A LOT of other rules that collectors must follow when trying to recover a debt.

For one, a collector cannot HARASS the debtor. But, what does that mean? Well, “harassment” includes:

  1. using threatening or intimidating language;
  2. exerting undue or excessive pressure; or
  3. publishing or threatening to publish a debtor’s failure to pay.

Also, if the collector knows that the debtor has retained a lawyer, then the collector cannot directly contact the debtor (and must contact the lawyer, instead). As you can imagine, this is an added benefit for some debtors…

The Criminal Code also prohibits certain forms of debt collection:

  1. a collector cannot threaten to cause harm to the debtor or the debtor’s property (section 264.1); and
  2. a collector cannot convey false messages to the debtor with an intent to alarm or annoy the debtor (section 372).

So, assuming that the creditor does not break the rules when collecting the debt, what are the methods that a collector can use to collect a debt?

One thing that a collector can do is “freeze” the assets of a debtor: this prevents the debtor from disposing/selling the assets (pending the outcome of a lawsuit). This is referred to as a Mareva injunction.

A collector can also garnish (take money from) a debtor’s bank account or wages. There are several rules for doing this and it is usually difficult for a collector to recover a lot of money this way, but it can be done.

Depending on the size of the debt, a collector can also go to court to get an order to sell the debtor’s real estate/property. In addition, a collector can take personal property, such as motor vehicles, household items, work tools, and shares in a company.

With that said, though, a collector cannot take EVERYTHING that a debtor owns. See section 71 of the Court Order Enforcement Act. A debtor is entitled to be “left” with some “basics”, including:

  1. $4,000 for household furnishings and appliances;
  2. $2-5,000 for one motor vehicle (depending on the circumstances); and
  3. $10,000 for tools and other personal property of the debtor that are used by the debtor to earn income from the debtor’s occupation.

As you might have guessed, these “exemptions” are intended to “help out” debtors. But, thankfully, they don’t apply to corporate debtors (i.e. corporations that owe money). For more information, see Court Order Enforcement Exemption Regulation, BC Reg 28/98.

With all this said, here’s my advice: pay your bills. If you don’t, it will end up costing you A LOT more money in the long run.

And now you know.

**The information contained in this column should not be treated by readers as legal advice and should not be relied on without detailed legal counsel being sought.

Originally posted on Castanet.net on April 9, 2013: Give me back my money, now!

The mystery of foreclosures

Last week, I spoke to someone who was having difficulty making their mortgage payments. That led me to this week’s column topic: the foreclosure process.

Today’s real estate market is ‘iffy’. Half the experts think that the market is overvalued and home prices will crash. And the other half think that home prices will remain relatively constant: Is Canada’s housing market cooling or crashing?

 

It is certain, though, that foreclosures have been rising, which has also been the case in Kelowna: Home foreclosures skyrocket in Kelowna.

While common, do you know what is involved in a foreclosure? I suspect that most people don’t know what is involved in the process. So, here is the typical foreclosure…

To begin, most people need to borrow money to purchase a home (i.e. they need to take out a mortgage). Those people are then required to repay that mortgage. As you can imagine, problems arise when people can’t make those payments.

When no payments are made (typically for several months), the creditor/bank, who loaned the money to the debtor/borrower, will send a demand letter to the debtor, requesting repayment.

If the debtor does not make sufficient payments, then the creditor will typically start the foreclosure process. So, what does this mean? Well, it means that the bank will hire a lawyer to go to court and get a court order. That order will state that the debtor owes money (to the creditor) and it will give the debtor a set amount of time (which is known as the ‘redemption period’) to pay back ALL the money that is owed (under the mortgage). This order is referred to as an Order Nisi.

The amount of time (i.e. the redemption period) that is generally given to the debtor is 6 months. But, the redemption period can be much shorter, such as 1 day, if there is very little equity in the property.

Now, if the borrower does not repay the money (within the redemption period), then the bank’s lawyer will go back to court and get an order allowing the bank to market the property. This order is referred to as an Order for Conduct of Sale. If the creditor gets this order, then a realtor will be hired and the property will be marketed.

The realtor will market the property just like any other property. It will be placed on the MLS, be marketed in magazines, and be shown to prospective purchasers.

After an offer is made (that is satisfactory to the creditor), the creditor’s lawyer will go back to court and request that the property be sold (to the party making the offer). At this time, other offers on the property may be entertained in court (and the highest offer will ‘win’ the property). This final order is referred to as an Order Approving Sale.

You might think that you can buy foreclosures for ‘dirt cheap’. But, that isn’t true. In order for a court to approve the sale of a home to another party, the creditor’s lawyer needs to show the court that the property is being sold for fair market value. This is typically done by referring to a realtor’s marketing report, which details the efforts of the realtor to sell the property, and an appraisal, which indicates the property’s fair market value.

So, if a property has been marketed for a very short period of time and the offer is well below the appraised value of the property, it is unlikely that the court would allow the property to be sold.

Now, why does this matter? Why shouldn’t the court allow the sale of a property for ‘dirt cheap’? Well, in these circumstances, the debt (from the house that the debtor couldn’t afford) carries over and follows the debtor. The creditor could then keep chasing the debtor for the money that it is owed (that it could have otherwise got from the sale of the property). This would be unfair. The creditor should try to get as much money as it can from the sale of the property.

The foreclosure process can be complicated and can come with some pitfalls. For this reason, a lot of would-be purchasers are scared away. But, if you love the home, the trouble can be worth it.

And now you know.

**The information contained in this column should not be treated by readers as legal advice and should not be relied on without detailed legal counsel being sought.

Originally posted on Castanet.net on October 16, 2012: The mystery of foreclosures.