Apr 01, 2020
THE NEW REALITY: PRIVATE MORTGAGE LENDERS’ RIGHTS AND REMEDIES - Part III of a Series - Mortgage Default
I write this post on April 1. April Fools’ Day. If only this pandemic were just that. Unfortunately, it is not a joke and there are no do-overs. That’s just wishful thinking, I am afraid.
So the New Reality is here to stay. Literally hundreds of thousands of Ontario residential mortgages have regular mortgage instalments that fall due today. Residential mortgagors by the thousands are expected to default today in the payment of principle and interest owing under their institutional mortgages and under their private lender mortgages.
The analogy of a train barreling down a mountainside with no brakes seems particularly apropos. And the (up to) 6 months’ deferral of principle and interests instalments sanctioned by the federal mortgage insurers is not going to be a ‘fix’. Rather, as discussed in my March 28/20 Blog post THE NEW REALITY: PRIVATE MORTGAGE LENDERS’ RIGHTS AND REMEDIES - Part II of a Series, this institutionally sanctioned deferral will result in the erosion of mortgagors’ equities in their homes, to the detriment of private mortgage lenders. And many homeowners will simply not survive this pandemic economically. And the private mortgagees will be left to pick up the proverbial pieces when the pandemic subsides and when life gets back to near-normal.
A default is best described as a failure of the borrower to do what the borrower promised to do (or promised not to do) in the mortgage document itself. There are basically 3 flavours of mortgage defaults:
- direct monetary defaults (the borrowers’ failure to pay to the mortgagee amounts owing under the charge)
- 3rd party monetary defaults (the borrowers’ failure to pay to a 3rd party amounts owing to that third party (contrary to the terms of the mortgage agreement) such as realty taxes, condominium fees or fire and property damage insurance)
- non-monetary defaults (the borrower’s failure to do what she or he promise to do in the mortgage (other than the payment of monies) such as allowing the property to become vacant or constructing on the property without the mortgagee’s consent, to name a couple)
Some defaults are serious. Such as the failure to make a payment when due or allowing a construction lien to be registered against title. Others seems less so, such as renting out a basement apartment without the lender’s consent. Some defaults can be cured (by paying the missed payment or by doing the thing that the mortgagor promised – but failed - to do). Some defaults cannot be cured (such as being petitioned into bankruptcy). But serious or not, or curable or not, the existence of a default gives the private mortgagee rights. The mortgagor’s default under the mortgage gives the private mortgagee the right to enforce its security. This is a right accruing to the private mortgagee under the common law and under the contractual terms of the mortgage and under the Mortgages Act.
But the first step in enforcing private mortgagees’ rights is the demand – or demand letter – or lawyer’s letter. It is vitally important for the private mortgagee to let the mortgagor know that:
- a default has occurred
- what must be done to rectify the default
- the time frame within which the default must be cured
More on defaults in the next blog post. And remember, this blog is intended for information purposes only. It is not legal advice and cannot be relied on as such. Nor is it a substitute for hiring your own legal counsel, who will be an essential member of your mortgage default and mortgage remedy team. And lastly, this blog is just my opinion. I reserve the right to change my mind. And I reserve the right to be wrong.
Be well and stay healthy.