A “mortgage” or “charge” is a conveyance of land as security for the payment of a debt. So long as the Borrower performs all of his or her obligations under the mortgage, the Lender has no rights against the Borrower or against the charged land.
However, in the event of a default by the Borrower (failure to make a regular payment; failure to pay taxes; failure to keep the property insured; failure to pay off the mortgage on the due date or any other default under the terms of the mortgage) certain remedies arise:
- Action Against The Borrower: In most mortgages, the Borrower covenants for payment. In the event of any default, one of the remedies available to the Lender is to sue the Borrower personally for the amount of the indebtedness.
- Action For Possession: Most mortgages provide that until default the Borrower will retain possession of the subject lands. However, in the event of default, the Lender is entitled to possession of the subject premises and to receipt of rents and profits arising from the land. A Lender has an immediate right to possession. An action may be brought by the Lender for possession alone or in combination with a proceeding for sale under power of sale or a claim foreclosure and personal payment.
- Sale Under Power Of Sale: This is the most normal remedy pursued by Lenders. The authority for the proceeding lies in the provisions of the mortgage documents, in the Mortgages Act and in the Short Forms of Mortgages Act. After 15 days default, the Lender may give notice in accordance with the form of notice prescribed by the Mortgages Act. The notice is to state the amount claimed to be due for principal, interest, taxes, insurance premiums, costs and other expenses. The notice must be served on all persons having an interest in the land charged by the mortgage. Every party with an interest in the land has a period of time as specified in the notice (at least 35 days) within which to pay off the sum owing to the Lender. In the event of default in paying off the outstanding sum owing within the time limited, the Lender has the right to sell the mortgaged property. The proceeds of sale are applied first to the payment of costs related to the sale, then to repayment of the outstanding interest and costs owing on the mortgage, then to repayment of the principal balance owing. Any balance is applied to subsequent lenders or creditors. Only after all outstanding claims and charges against the land have been repaid in full would the Borrower receive any part of the proceeds of sale.
- Action For Foreclosure: In the event the Lender wishes to absolutely foreclose the Borrower and any other secured parties having interest in the land subsequent in priority to the interest of the Lender, the Lender may commence an action for foreclosure. Once the Borrower is in default, the Lender is entitled to pursue all its remedies concurrently (and may claim for foreclosure, payment and possession against the same Borrower). Unlike the power of sale proceeding, a foreclosure action is an actual Court action initiated by issuing and serving a Claim. Subject to the rights of the Borrower to defend the proceedings or to require an opportunity to redeem or sell the property, the Lender may acquire a Judgment. If the sum found to be owing to the Lender is not repaid within the time limited, the Lender will become the absolute owner of the property (subject to any prior mortgages or interest registered prior to the mortgage of the Lender).
The determination by the Lender as to which remedy to pursue will be based upon a number of considerations:
- If the property is valued considerably in excess of the amount owing on the mortgage, the Lender may proceed by way of foreclosure in order to become the absolute owner of the property without having to pay any balance of sale proceeds to any third parties.
- If the Lender wishes to dispose of the property (and the problem) as quickly as possible, the Lender may proceed by Power of Sale. A Lender is normally able to realize the sum owing much more quickly through this proceeding then by initiating a foreclosure action in Court.
This article is intended for general information purposes only and is not intended to provide legal advice. Readers with concerns about how this affects particular situations or transactions should obtain the independent review and advice of legal counsel.