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HOW WE CAN HELP LENDERS ENFORCE THE TERMS OF THEIR MORTGAGE
At Jahanshahi Law Firm, we have the experience and knowledge to represent lenders throughout the mortgage enforcement process. If we represent you in the original lending transaction, we would have previous knowledge of the mortgage in default. If we did not represent you in the original transaction, we would set up an initial consultation where we would discuss the way forward including the most effective and efficient mortgage enforcement method. Our goal is always to collect the principal amount as well as any interest or penalties owing in the least expensive manner while remaining respectful to the borrowers in default.
REMEDIES AVAILABLE TO LENDERS IN ONTARIO
In Ontario, there are three default remedies available to lenders: the lender can exercise a foreclosure of the mortgaged property, the lender can have the courts oversee a judicial sale of the mortgaged property or the lender can execute a power of sale. Initiating power of sale proceedings is generally the most common and cost-effective mortgage enforcement method. We can assist you throughout the power of sale process to ensure all necessary forms and documents are served or filed as necessary within the allotted deadline and the terms of the mortgage are enforced swiftly and expeditiously.
THE POWER OF SALE PROCESS IN ONTARIO
A successful power of sale proceeding allows a lender whose investment is in default to take possession of the property and sell it to recover its principal amount, interest, and costs associated with initiating power of sale proceedings. Any excess funds after payment of the above to the lender must be returned to the borrower(s). Below you will find a flow chart that sets out the procedure involved in a power of sale proceeding.
Once a borrower has defaulted on the terms of the mortgage, the lender must wait 15 days before initiating power of sale proceedings. We generally recommend that prior to initiating power of sale proceedings, the lender serve the borrower with a demand letter granting the borrower the chance to bring the mortgage into good standing within a specified period. The lender cannot take further action until the time set in the demand letter has expired. The steps involved in a power of sale are further discussed below:
STEP 1 – NOTICE OF SALE
Once the lender has waited the statutory 15-day waiting period, the lender can proceed to serve the defaulting borrower with a document called “Notice of Sale”. The Notice of Sale must be served on all parties who have an interest in the property including guarantors, spouses, subsequent mortgagees, and tenants leasing the premises. The Notice of Sale must include specific information including the amount required to bring the mortgage into good standing or the amount required to discharge the mortgage. After the Notice of Sale has been served, the borrowers have 35 days to bring the mortgage into good standing or pay out the mortgage in question.
STEP 2 – STATEMENT OF CLAIM
If the borrower does not redeem the mortgage within the 35-day statutory period, the lender can proceed to serve the defaulting borrower with a statement of claim requesting among other things, outstanding payment, and possession of the property. The borrower then has 20 days to respond to the Statement of Claim by filing a Statement of Defence, failing which, the courts will likely issue a default judgment in favor of the lender.
STEP 3 – OBTAINING A WRIT OF POSSESSION
Once the lender receives a judgment in its favor, the lender can then bring a motion for a writ of possession authorizing the lender to take possession of the mortgaged property. Once the writ of possession has been obtained, the lender can evict the current occupants of the property with help from the sheriff’s office.
STEP 4 – SALE AND CLOSING OF THE PROPERTY
Once possession of the property is obtained, the lender will place the property up for sale. At this point, the lender must be careful not to expose itself to liability by not following the correct procedure. For example, the property must be sold at fair market value and the agreement of purchase and sale entered into must contain specific clauses that seek to limit the liability of the lender to the potential buyer(s). For example, a clause should be included in the agreement that allows the lender to terminate the transaction if the borrower brings the mortgage in good standing or pays the balance of the mortgage prior to the closing of the transaction. Once the transaction is completed, the lender must pay outstanding encumbrances in order of priority. If there is a surplus after paying outstanding encumbrances, it must be paid to the borrower(s).
To find more information about the mortgage enforcement process we invite you to visit the Real Estate Law insights section of our website. If you are an investor looking to enforce the terms of a mortgage, contact us to set up an initial free consultation.