Mortgage enforcement is a crucial aspect of real estate transactions. This process ensures lenders can protect their interests when borrowers default on mortgage payments. Understanding the intricacies of mortgage enforcement is essential for both lenders and borrowers, as it can have significant implications for property ownership and financial stability.
This blog will outline the essential concepts, processes, and advantages of the significant enforcement mechanisms available to lenders.
What is a Mortgage?
A mortgage is a type of loan specifically used to purchase real estate. It allows individuals or businesses to borrow money from a lender, typically a bank or a mortgage company, to buy a home or other property, using the property as collateral for the loan. If the borrower fails to repay the loan according to the agreed terms, the lender can generally foreclose on the property and sell it to recover the outstanding debt.
The Mechanisms in the Mortgages Act
In Ontario, mortgage enforcement is primarily governed by the Provincial Mortgages Act, which outlines the rights and remedies available to lenders and borrowers in a mortgage transaction. It sets out mortgage documentation and registration requirements to ensure transparency and enforceability. It also provides lenders with remedies in the event of default, which will be discussed below.
Enforcement Remedies Available to Lenders
The lender has several options available to them in the event of a borrower’s default:
- The lender could sell the property under a power of sale provision or by court order,
- The lender could obtain title to the property through foreclosure,
- The lender could take possession of the property, or
- The lender could obtain a judgment against the borrower or any guarantor for the defaulted finances.
The action that the lender could take will generally depend on the specific circumstances of the transaction. To begin enforcement proceedings, the lender will typically send a demand letter to the borrower outlining the default circumstances and a repayment deadline. The Mortgage Act prevents the lender from commencing further enforcement action during the repayment period specified in the demand letter. If the default continues past the deadline, the lender can then pursue mortgage enforcement.
Power of Sale
Power of sale allows the lender to sell the property without court intervention to recover the outstanding debt. The lender would obtain the property free and clear of the interests of the borrower and any other party subsequent in priority. As a result, this is a popular option for lenders.
The mortgage will typically contain the power of sale provisions that govern this process, as informed by the Mortgage Act. If the mortgage does not include power of sale provisions, the lender must rely on the statutory power of sale in the Mortgage Act. Much of the process remains the same, albeit with some extended deadlines.
To effect the sale, a notice of exercise of the power of sale must be provided to the borrower and all persons having a subsequent interest in the property. The rules surrounding the preparation of this notice and its delivery to the appropriate parties are complex. It is best to speak to an experienced property lawyer to ensure the notice is effective under the Mortgage Act.
Overall, the advantages of a power of sale include:
- A generally fast process compared to other enforcement mechanisms;
- Power of sale is a private process, without the need for court, thus reducing costs;
- The notice of sale can be served by regular mail, which is also cheaper than personal service as required under court processes; and
- Land transfer tax is not payable for the power of sale process.
Foreclosure and Judicial Sale
Foreclosure allows the lender to take legal ownership of the property and sell it to recover the debt. Compared to power of sale, foreclosure and judicial sale are court-supervised, which means the process is generally slower. However, there are several advantages over a power of sale, such as:
- Any surplus for the sale of the property does not need to be provided to the borrower or any other person;
- The court can resolve complex issues between the parties, whereas the power of sale is a private process; and
- After foreclosure, the lender can resell the property at a time of their choosing, which offers them flexibility if the market is poor.
To effect a foreclosure or judicial sale, the lender must bring a statement of claim against the borrower for a default, which begins the litigation process. If the court grants judgment in favour of the lender, it issues an order setting out the terms of the foreclosure.
Contact the Real Estate Lawyers at Tierney Stauffer LLP for Legal Advice on Mortgage Enforcement and Litigation
The skilled real estate lawyers at Tierney Stauffer LLP understand that property transactions and mortgage litigation can be confusing and overwhelming. From our offices in Ottawa, Cornwall, Kingston and North Bay, our real estate team works closely with each client and takes strategic action to reduce risk, secure clients’ interests, and protect their financial investments. Our team reviews Agreements of Purchase and Sale, handles title insurance matters, and assists with mortgages and refinancing. In cases where it is necessary to go to court to enforce a mortgage, our litigation lawyers ensure that the matter is handled efficiently and effectively. If you are a borrower or a lender and have questions about mortgage enforcement and mortgage litigation, contact us online or call us at 1-888-799-8057 to speak with one of our team members regarding your rights and options.