The Mortgage Act - calling all lawyers!!!

[The Cunning Linguist]

I have a problem gentlemen...I have retained counsel, but it's always beneficial to hear other opinions.

I currently hold a mortage on a piece of commercial property that has accrued greatly in value from 5 years ago. The last payment of the initial 5 year period was March 28th. I indicated via registered mail to the borrower on February 1st (60 days)I would not be renewing, and would expect payment in full for the balance. It's a considerable sum of money (at least to me).

I've yet to hear from the borrower. Nothing.

I've read the mortage act. Is the borrower in default, and I have to wait 15 days to enact Power of Sale? Or can I go after him right away and foreclose? There is another secondary lender, and I believe there is another secondary owner as well, but my guy is the one writing the checks, and is on personally as well(not just his company).

This property has increased greatly in value in the last 5 years. The zoning was changed from agricultural to big box store commercial since the sale, and the property across the road had it's zoning changed to residential, and has since sold for a very large dollar.

What's my options? Can I foreclose? Does the borrower get anything back, such as the principal? Can I sue for damages? If I sell for more than the amount owing, is the difference mine?

I always thought that if you defaulted in your payments in a mortgage, you walked away with nothing.

Thanks guys.

 

[fuji]

Rube has it right.

The "borrower" is the owner of the property. You are merely a lender, the property, to you, is nothing more than collateral.

You are entitled to get your money back and certainly will. He is entitled to benefit from any increase in the property value: He assumed all the risks of ownership, you did not. If you sell the property you have to give him any amount beyond what he owes, less the costs of the sale.

As for how much time I don't know, your counsel will tell you. It depends on what it says in your mortgage agreement and on case law. I would hazard a guess (and it is nothing more than a guess) that he still has a bit of time--that even if you initiate power of sale he could put a stop to it by ponying up what he owes.

 

[The Cunning Linguist]

It sounds like you are hoping to take advantage of the increase in value of the property in excess of what is owed to you

I just want this slimy little prick to pay me the money he owes me. I've had to chase him for the monthly mortgage payments as well.

Thank heavens I didn't have a real estate deal of my own (purchasing another home) go sour because the borrower didn't live up to his financial obligations.

 

[DATYdude]

Rube has it right.

The "borrower" is the owner of the property. You are merely a lender, the property, to you, is nothing more than collateral.

You are entitled to get your money back and certainly will. He is entitled to benefit from any increase in the property value: He assumed all the risks of ownership, you did not. If you sell the property you have to give him any amount beyond what he owes, less the costs of the sale.

As for how much time I don't know, your counsel will tell you. It depends on what it says in your mortgage agreement and on case law. I would hazard a guess (and it is nothing more than a guess) that he still has a bit of time--that even if you initiate power of sale he could put a stop to it by ponying up what he owes.

Fuji is right. The notice period for Power of Sale will be in the mortgage document or related Standard Charge Terms, and if not you look to the Mortgages Act.

 

[neverwas]

If the property is worth more than the amount owing on the mortgage you should consider foreclosing instead of proceeding by power of sale. If you foreclose the owner or a subsequent mortgage holder must pay the full principle, interest and costs or you end up owning the property without any obligation to the original owner. You get to keep the excess value.
If you sell under power of sale the excess beyond your claim goes to subsequent mortgagees and the owner. In addition, you have the obligation to sell for the "best price reasonably obtainable".

 

[The Cunning Linguist]

If the property is worth more than the amount owing on the mortgage you should consider foreclosing instead of proceeding by power of sale. If you foreclose the owner or a subsequent mortgage holder must pay the full principle, interest and costs or you end up owning the property without any obligation to the original owner. You get to keep the excess value.
If you sell under power of sale the excess beyond your claim goes to subsequent mortgagees and the owner. In addition, you have the obligation to sell for the "best price reasonably obtainable".

I believe this is the plan that my lawyer is advocating. Foreclosure. Since the term of the mortgage has ended (5 years), the final balance is due immediately. The property(chattel) is the security, and it can be seized, and then sold to satisfy the debt, with any excess kept by the lender.

There is one fly in the ointment. The property may be damaged by something the borrower has done. This might reduce the value, and restrict it's future use. In which case I have to sue the borrower for damages to make up the difference in what I can get for the property, and what it's really worth on today's marketplace.

I'm not looking forward to this.

Thanks for all the opinions gentlemen.

 

[rayden]

I believe this is the plan that my lawyer is advocating. Foreclosure. Since the term of the mortgage has ended (5 years), the final balance is due immediately. The property(chattel) is the security, and it can be seized, and then sold to satisfy the debt, with any excess kept by the lender.

There is one fly in the ointment. The property may be damaged by something the borrower has done. This might reduce the value, and restrict it's future use. In which case I have to sue the borrower for damages to make up the difference in what I can get for the property, and what it's really worth on today's marketplace.

I'm not looking forward to this.

Thanks for all the opinions gentlemen.

I believe if you forclose you cannot sue as you will own the property on title. If you do a power of sale, you can sue for short falls or visa versa pay the owner any overages after costs.

 

[fuji]

If I recall correctly, and confirm this with your counsel (ask), you have to wait for 15 days after the default before initiating a power of sale. On the 15th day you can send notice, there's probably then another 30-45 days redemption period during which the borrower can respond to your notice by ponying up the money owed thereby redeeming the mortgage.

In short if your mortgage was due at the end of March the earliest you'd be able to sell the property would be June 1st, and any time prior to that the borrower can pay what he owes to redeem the mortgage.

I personally do not think in EITHER case, judicial sale, or contractual sale, are you entitled to keep more than the money you were owed, meaning in neither case will you benefit from a rise in value of the property.

The term "forclosure" applies to both power of sale and to judicial sale so I am not sure why people are telling you that forclosure is an alternative to power of sale. The alternatives are court-ordered judicial sale, and mortgage contract power of sale (which may be implicitly written into the mortgage by the act if it wasn't otherwise specified.) They are both forclosure methods, and most people prefer power of sale because it is quicker.

I am not 100% sure of what I am saying so make these points to your counsel and ask him to clarify for you.

In any case if you just want the money you are owed rest easy--it is a relatively quick process. Two months may seem like a long time, but it's not really. By mid-June you will either have been repaid, or have sold the property and recovered your money. That the properly has risen in value merely means that there will certainly be funds enough there that you will get back what's yours.

(Though you now say it may fetch less than what you are owed due to "damages", in which case it's less fun because you'll only get part of your money back in that case, and then trying to get the rest out of the guy may be like getting blood from a stone if he's broke.)

 

[neverwas]

Foreclosure and power of sale are separate rights. With foreclosure you get the benefit of any excess value. With power of sale you have to account to the owner for any extra value.
If the property is worth less than the mortgage and you want to sue the owner for the shortfall you must proceed by power of sale.

 

[Perry Mason]

Foreclosure and power of sale are separate rights. With foreclosure you get the benefit of any excess value. With power of sale you have to account to the owner for any extra value.
If the property is worth less than the mortgage and you want to sue the owner for the shortfall you must proceed by power of sale.

This is the correct answer... you get 100/100 on mortgage remedies... unless you are a lawyer, in which case you get to keep your license!

The only other factor is that, in foreclosure, the mortgagor (owner) gets a longer period to redeem the mortgage.

Perry

 

[The Cunning Linguist]

I don't think he's broke, but I don't think he's very "liquid" either. I also hear through the grapevine that Revenue Canada may be looking into his affairs. I believe this because of previous "escapades" this guy has got himself into with goverment agencies.

Perry...how much longer is a foreclosure process versus POS?

and thanks.

 

[benstt]

This is the correct answer... you get 100/100 on mortgage remedies... unless you are a lawyer, in which case you get to keep your license!

The only other factor is that, in foreclosure, the mortgagor (owner) gets a longer period to redeem the mortgage.

Perry

I'm no expert, but it sounds like actually foreclosing in a situation where the property value exceeds the mortgages is tough to do; the system gives the mortgagor good chances to either redeem or switch to a sale.

Found some details here...

http://genesismortgages.com/genesis-associates-mortgage-brokers-on-mortgage-legal_menu.html


What about the fly CL mentioned?

<quote> There is one fly in the ointment. The property may be damaged by something the borrower has done. This might reduce the value, and restrict it's future use. In which case I have to sue the borrower for damages to make up the difference in what I can get for the property, and what it's really worth on today's marketplace.</quote>

Can an owner be held liable for not maximizing the value of their mortgaged property? Or for diminishing the value of their mortgaged property somehow?

 

[Papi Chulo]

As usual.. lots of lawyers here!

 

[LancsLad]

Should also consider the potential for a "touched it last" liability if its got a possible environmental concern. You may not want to end up as the owner on title, rather force a sale to someone who may be in a better position to protect themselves. If you held the mortgage personally and there is any potential liability that runs with the property you don't want a ticking time bomb in your hands.


I'm no lawyer, ( thank God) but I have stayed at a Holiday Inn Express, and I have been called to plenty of Bars.

 

[Aardvark154]

With foreclosure you get the benefit of any excess value. With power of sale you have to account to the owner for any extra value.

Are you sure about this? At least in my jurisdiction, I have to agree with Fuji.

In my jurisdiction there is a law regarding this, which Ontario very well may not have. However, I was under the impression that it was fairly standard elsewhere that the amount the property realizes in a foreclosure sale over the amount of the Mortgage belongs to the Mortgagor (the person who borrowed the money) not the Mortgagee (the person who loaned the money).

Certainly (although perhaps not in Ontario) the Mortgagor has the right to petition the court to order a sale if you the Mortgagee foreclose. Mortgagee then has a fiduciary responsibility to realize the highest price possible.

 

[neverwas]

In Ontario the mortgagee, after foreclosing, owns the property free of any claim by the mortgagor. If the property is worth more than the amount of the debt he keeps the balance.
In the past the mortgagor (owner) could easily delay a foreclosure by an extra 6 months but for many years that has been shortened to 60 days. Although in theory a forclosure takes a little longer, in practise there is not much difference, the time mainly depending on the steps taken by the mortgagor and owners of subsequent mortgages, and by the time taken to sell in a power of sale.

 

[Moraff]

As usual.. lots of lawyers here!

Yah, but in a refreshing turn of events the OP has already retained counsel and is merely looking for opinions.

 

[landscaper]

You might want to check on any liens that may have been placed on a property. If revenue canada has issues with the guy they may lien all his properties to recoup the tax lose, they do get first crack at everything . That is the reason banks want to pay the taxes when you take out a mortgage on a house. If they have to forclose the taxes are paid and they don't stand in line.

 

[LancsLad]

You might want to check on any liens that may have been placed on a property. If revenue canada has issues with the guy they may lien all his properties to recoup the tax lose, they do get first crack at everything . That is the reason banks want to pay the taxes when you take out a mortgage on a house. If they have to forclose the taxes are paid and they don't stand in line.

Property taxes paid thru the bank on a property are a totally different beast from any tax issues a person may have with rev canada, unless of course its a withholding issue re purchase from a non res, but thats another issue entirely.

 

[Perry Mason]

... I was under the impression that it was fairly standard elsewhere that the amount the property realizes in a foreclosure sale over the amount of the Mortgage belongs to the Mortgagor (the person who borrowed the money) not the Mortgagee (the person who loaned the money).

Yes, but you are now talking about the situation where the mortgagee begins foreclosure and the mortgagor asks the Court to turn the foreclosure into a judicial sale... something which is seldom, if ever, refused.

And to answer neverwas's point: the court cannot abridge or change the time periods on a sale under power of sale, but will frequently extend the time for redemption on a foreclosure either on terms or as a matter of course if there is no prejudice to the mortgagee...

There have even been cases in which the mortgagor has been granted the right to redeem even after the foreclosure is final.

There are more twists and turns to the law in this area than you can possibly imagine... and the courts often act on the principle that "Once a mortgage, always a mortgage" to help out a mortgagor whenever the equity in the property is substantially greater than the amount (including legal fees and all expenses) due under the mortgage.

Perry