Apr 11, 2020
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part IV of a Series – Demand Letters – 1 of 3
In the previous Blog post found at here I wrote about mortgage defaults; material defaults, not-so-material defaults, and curable and non-curable defaults. Defaults related to the payment of money owing to the mortgagee and defaults related to the payment of money owing to third parties. There are also non-monetary defaults, too.
The first step for a private mortgage lender, upon discovering that the owner/mortgagor has defaulted under its mortgage, is to give the owner/mortgagor notice of the default and fair warning that a notice of sale or foreclosure action is likely to follow. Many private mortgagees like to call or email the mortgagor at this early stage in the mortgage remedy process in order to attempt to flesh out the root cause of the default.
Until the Covid-19 Pandemic, the most common causes of mortgage default that I regularly saw in my mortgage remedy practice were (in no particular order) marital breakdown, serious illness or job loss (or reduction in paid hours) of the mortgagor or of her or his partner. That was then! In March 2020 with self-isolation, social distancing and mandatory business closures the new normal, Canada’s unemployment rate shot up 40%, from 5.6% in February to 7.8% in March. Most lenders are predicting a very robust mortgage default onslaught once life and commerce return to normal – whenever and whatever that will look like!
But a phone call to the defaulting mortgagor by the private mortgage lender is still highly recommended. It can establish a rapport. And trust. And in some cases will let the mortgagee know immediately whether the default is likely to be either very temporary, or quite permanent. An early phone call may also allow a mortgagee to give the mortgagor the opportunity to try to cure the default with prompt payment of the mortgage arrears within a very short time frame. If the default is quickly cured, the mortgage account is regularized and periodic mortgage installments can follow. Unfortunately, do not expect most phone call interactions following a private mortgage default to reap a satisfactory result.
If the default continues despite mortgagor/owner promises of prompt payment, then the lender is encouraged to issue a written notice of the default. A demand letter is the usual route to go. Some lenders like to issue their own demands. Others choose to retain legal counsel to start the mortgage remedy process with a written demand letter from the lawyer. There is no question in my mind of the power of a ‘lawyer’s letter’ giving the owner/mortgagor 7 days (or so) to cure a default.
Very often, if the default is curable, this is the easiest and least expensive time for the mortgagor in default to rectify the default and put the mortgage back into good standing.
Next, I’ll have a look at demands following a default in the payment of amounts owing to the mortgagee versus a default in the payment of amounts owing to third parties, such as realty taxes, condominium fees and the like. And please 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.