Your CMHC insurance doesn’t protect you

While it’s true that banks aren’t on the hook for loans that have been CMHC insured, it doesn’t mean you are off the hook.

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You know that whopping insurance premium you had to pay to Canada Mortgage and Housing Corporation (CHMC) because you had less than 20% for a downpayment on your home? Did you know that CMHC doesn’t consider you off the hook just because you forked over all that money? Here’s a letter I received that highlights the problem:

I have a judgment against me by CMHC from a mortgage that was foreclosed. The property was sold for $205,000, which was originally insured for $238,000. CMHC got a judgment of $33,000 plus interest totalling approximately $51,000 against me because the value of my property went down and I defaulted! I had no idea that this could happen. What do I do now?

A lot of folks are under the impression that if their property goes down in value or interest rates go up and they can’t keep up, they can just walk away from the property; CMHC will cover the bank’s behind on the mortgage and everything will be hunky-dory.

Nu-uh! While it’s true that banks aren’t on the hook for loans that have been CMHC insured, it doesn’t mean you are off the hook.

But Gail, what about that big fat insurance premium I paid when I took out the mortgage?

You mean the one you rolled into your mortgage and immediately started paying interest on? That insurance premium? That was just to get CMHC to cover the bank’s butt. You didn’t think the bank would have given you all that mortgage money without CMHC’s guarantee, did you? Not on your life. You would have had to jump through hoops of fire to qualify for that mortgage if CMHC hadn’t promised to cover the loan.

Of course that doesn’t mean CMHC won’t come after you for any difference between what a property had to be sold for and what the insurance coverage was originally. Here’s how the process works:

Once your mortgage has been in default for three months, legal proceedings are started through power of sale and the bank takes possession of your property.

The bank sells the property and submits a claim to CMHC for any shortfall.

CMHC gets a judgment against you as the defaulted mortgagor for this shortfall and CMHC tries to collect.

If this attempt is unsuccessful, the account is forwarded to one of CMHC’s collection agencies.

Guess you didn’t read your CMHC contract. Oh wait a minute, there’s no contract because the bank is CMHC’s client and they’re just passing the premium and the liability on to you! Sorry.

26 comments on “Your CMHC insurance doesn’t protect you

  1. I find this article informative, but the tone of the article is a little distracting.

    Back to the topic, Canadians just have to claim bankrupcy and then they will be free of any recourse of the mortgage. Look out for the bankrupcy rate to skyrocket in a few years when all the speculators and high-ratio mortgagees start defaulting on their financial obligations.

    Reply

    • Don't you lose your home and any vehicles you have if you claim bankruptcy? These are situations that people find themselves in, but surely never planned it. Jobs put too much pressure on people these days. and I now have a few sick friends (like terminal), so who's going to care if you are here in 100 years? No-one will know you…maybe a nice plaque on the wall, so don't kill yourself over work, it's not worth it. I have been off work for 2 years due to severe clinical depression caused by some A-holes I worked with (after working there 19 years).Yes I am broken, both physically and mentally, and I am sorry – why did I get into all that? LOL

      Reply

  2. We just sent a letter to our bank to consider taking our deed and cancelling our debt, no foreclosure process involved. However, our mortgage was insured with CMHC. Our letter of proposal to the bank included that we would no longer be liable for any shortfall on the mortgage. Our lawyer has just informed us that the final decision will be CMHC, as our bank is covered no matter what. However, if they do accept, does that mean CMHC could still come after us, even though part of our agreement if to be released from any further liability?

    Reply

    • Yes – unless you bank agrees to NOT make a claim on the CMHC insurance.

      Reply

  3. The basic upswing is this: YOU are not insured. The premium YOU pay is just the premium the bank pays passed on to YOU. YOU are on the hook to the bitter end. If the product of the bank sale of your property will not cover your full debt to the bank, the CMHC will reimburse the bank for the difference and then come after YOU. As for Deeds in Lieu of Foreclosure, Good luck with that. YOU are still on the hook for any shortfall. Best way to avoid this: Buy less house, put more than 20% down and pray that you build-up sufficient equity in your home to pay-off all your debts if you can no longer make your payments in the future.

    Reply

  4. CMHC sent me a letter to claim 120 000$ because Td bank sold the property at a lower price. I just got this letter and i cant contact a lawyer at this time so i looked up the topic and fell on this page. would anyone know what i can do other than bankruptcy to avoid this. I have minimum salary and no assets.. i cant pay upp. HELP PLEASE

    Reply

    • Marc,
      This is a complicated issue, but there may be a few options. Unfortunately, though, to give you an answer, I would need more information. Would you have time to call me? I typically handle the real estate issues for MoneySense. I can be reached on my direct line at: 416-764-1382 or by email at romana.king@moneysense.rogers.ca
      Romana


      Romana King
      Senior Editor & Columnist
      MoneySense
      Roger’s Publishing
      1 Mount Pleasant Rd., 11th Floor
      Toronto, ON, M4Y 2Y5
      Direct: 416-764-1382
      Email: romana.king@moneysense.rogers.com

      Reply

    • I have the same situation with you. did CMHC send you a judgement also? I just talk to cmhc, he said I need to find a lawyer to deal with this, and i ask what type of the lawyer should I find, he said he don't know, and he said the judgement is forever unless I pay the amount I own them. And then I ask if I want to find a trustee to deal with this, he said even I file bankrupt, the judgement is still there. Have you solve your problem already? Is anybody can help me???

      Reply

      • You don’t need a lawyer to make a proposal.. Do not say too much to the collection agency Go see a trustee in Bankruptcy and have them negotiate a proposal… the collection agency will try to speak with you directly to put the squeeze on you, but just tell them to work with the trustee..
        You might just pay 5K for a short fall of 30K.. if you get a good trustee.. a good trustee will only charge $200.00 to 250 to get you sorted out…

        Reply

        • Do you know any trustees? Thanks.

          Reply

  5. I am a real estate lawyer and on every deal I have the client sign a CMHC disclaimer and explain the personal liability that they face. IMHO CMHC is a cash grab. I understand they are a crown corporation of sorts. All the premiums go into federal treasury every year which amount to billions with payouts in the millions, after all, only 20% of the purchase price is protected by the premium and they only pay if your property is sold at a loss. Also, the premium is added to your mortgage, so you are paying interest on that as well.

    Reply

    • If you’re a real estate lawyer I would hate to be your client.
      The premium covers 100% of the purchase price not 20%!

      Reply

  6. i'm 23 years old when i was 19 i bought a house under the first time home buyers act i thought i was insured under the first time home buyers act long story short the property forclosed i baught the house for 110,000 and when the bank sold it they only sold it for 34,000 no im in debt just under 75,000… is there anything i should do or should i just clain bankrupcy?

    Reply

  7. Hi,
    I have a judgement from CMHC in the amount of $96,000 ( includes interest) There is no way I can pay this debt – without going bankrupt is there any options out there for me?

    Reply

  8. I have just found out that we have to pay tax on the CMHC premium that is added to our mortage and the tax needs to be paid directly to the bank and is seperate from our mortage amount. Can anyone verify that please?

    Reply

  9. I am in the same situation, I just got a letter from CMHC stating there was a judgement against for $39,890. They have given me till July 14,2014 to contact them but I have no idea what my next steps are or what to do. Can anyone help with what I do next? Do I call them? What do I say? I do not have the money they are asking for (I work, have 2 kids, my spouse is on disability due it suffering a brain injury – we were not together at the time I purchased the condo so it is just all in my name – does that make a difference) Any help would be appreciated, thanks

    Reply

  10. This would have been good to know before we purchased our last house. I really thought that CMHC was on the people’s side not simply there to sue you if things went wrong. WHY did I pay just under $9000 in CMHC fees and they are doing nothing but being the threat of being sued because we bought a home that is full of mold. It was making my family sick. We did have it inspected on our own. Neither the bank nor CMHC requested a copy of the inspection or appraisal.
    This story could go on for pages but let’s just say that I asked, and begged for help, any help to deal with this. NOPE, the only help that I could be offered was to take more of a mortgage to fix the problem. Oh, and funny, the ratios for lending for us were no longer so important. Thanks.
    Why would the bank or CHMC help with maybe suing the inspector or something? What id it they do? It sure s S#it not what they have on their website.
    There are so many thing wrong in the government and this is just one more to ad to the growing list deplorable government activities or lack there of. Rest please. Has it gone too far? Can things be repaired or is it time for a total reset?

    Reply

  11. So this being the case of not haveing full disclosure from the bank, trapping you so to speak; how does one stop cmhc from collecting on this fraudulent proceedure ? There must be cases where people have one this battle, it is discusting that the bank which has no risk, would deceive people in this area

    Reply

  12. someone please respond to my comment

    Reply

  13. It can be worse. We sold a property 10 years ago on which was a 5 year cmhc mortgage – the Mtgee agreed to the sale but what we didn`t realize is that that did not release us from our obligation to CMHC in the event of a shortfall claim which happened a couple of years ago – CMHC is now hounding us for the shortfall which we are unable to pay. Justice.? NO WAY.!!!!!

    Reply

  14. Very informative read. I have a question though, if the borrower had put down 20% down payment to avoid CMHC, but circumstances happen and got defaulted along the way, and the lender takes the property and sells it less than the owing on the property, the borrower is free from CMHC right? whom is he responsible to pay the rest?

    Thanks.

    Reply

  15. We default on our mortgage because for lack of funds so we lost our house so bank sold our house for less then we owed now cmhc says we owe them 60000 k we cant even afford to go bankrupt what can we do. They also said they are goig to take all my tax refund can they do this

    Reply

    • Dave, the short answer is that yes, if both you and a spouse/partner are co owners of the house, CMHC will come after you. And yes, they can take your tax refunds. I am in this situation now, where I am in a Consumer Proposal and my wife cannot work and has no income except a disability pension. They are coming after her for the shortfall of 40K, however, they cannot take disability pensions, even though they can take take her tax refunds. My situation is more complicated because my Consumer Proposal dealt with the shortfall and was accepted by the creditor, so now it appears that both the bank AND CMHC are wanting to be paid out. I have learned, as well, that CMHC, as a Crown Corporation can be difficult to deal with. Good luck in your struggle. There are protections in consumer law for your situation, perhaps a Public Trustee (do your homework!) will steer you in the right direction. If you live in the lower mainland of BC I can tell you who I went to and got good service from. Good luck!

      Reply

  16. im wondering if the government can still give my refund on an expired judgement from cmhc, the judgement expired 7 years after it happened, and the government is still giving someone my refunds for the past 18 years, can I get this stopped?, im a senior on cpp disability, I live on 100 month if you can imagine that, im in a desperate situation, and I want to know if anything can be done about this

    Reply

    • How are they getting your money. ? dont leave any money in bank for someone to collect. close out your account if necessary and get another somewhere else
      cant believe that is happening to you and leaving you with only 100 for the month. Go get yoursself a pro bono lawyer A lawyer will give you advise , free advise for an hour.

      Reply

  17. how long does this judgement last. my son had a foreclosure and it took the
    bank 10 years to come after him for the difference owing which he thought Cmhc had taken care of?
    house repossessed 1999 and judgement received 2011???

    Reply

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