May 14, 2020
THE NEW REALITY: PRIVATE MORTGAGE LENDERS’ RIGHTS AND REMEDIES - Part XI of a Series – Will my mortgage debt be paid? Introducing the Notice of Sale.
You’ve been lending money to homeowners on the security of second and third real property mortgages for some time. Until now, your mortgage loans have always been kept up to date and interest payments have been made in full and on time. Additionally, all of your mortgage loans have been repaid on or shortly after maturity.
But the economy has dramatically changed. The TRREB’s latest figures for April 2020 are just as gloomy as one would expect, given that April was the first full month following the March 2020 Covid-19 lockdown. Now, many mortgagees will find themselves dealing with mortgage defaults for the first time. What is a private mortgage lender to do? How will you and other private mortgagees deal with these new issues:
- my private mortgage loan is in default
- my homeowner / customer cannot afford to make the next monthly payment when it falls due
- some borrowers cannot obtain the new financing needed to repay my mortgage debt when my mortgage loan matures
- the value of the home against which my mortgage security is registered has fallen dramatically and may not be large enough to fully repay the mortgages registered in priority to my mortgage
These are going to be the fundamental concerns that private mortgage lenders have to deal with over the next few months and perhaps years. Luckily, you are not alone. Real estate recessions have occurred in the 1990s and briefly in the early 2000s and most recently after the 2008 financial crisis. Mortgage remedies and mortgage debt collection have been the mainstay of my legal practice for decades.
You’ve already contacted your borrower? You’ve discussed the default and reviewed the steps that can be taken to regularize payments or rectify the default? But to no avail. When you are satisfied that there is no alternative, you will have to resort to mortgage enforcement and start your mortgage remedies.
You’ve analyzed the type of default and issued the appropriate demand letter(s). And you’ve chosen the power of sale route over foreclosure for various reasons, perhaps including:
- your main business is mortgage lending not real property ownership and maintenance
- you and your lending partners prefer to have their mortgage investment liquidated and funds returned
- you have no confidence in the quick turnaround of the local real estate market – which might make foreclosure a quick and profitable option
When all of this has taken place, you will hire an experienced lawyer who can prepare and issue a Notice of Sale for you. The Notice of Sale is a form that is appended to the Mortgages Act and is used to start the power of sale process. Its purpose is twofold. First, the private mortgage lender is obligated to identify which mortgage (that the homeowner has entered into) is in default. Second, the private mortgagee must let the borrower know the exact amount that is then owing under the mortgage in default. This will give the mortgagor an opportunity to redeem the mortgage and repay the debt in full; which will end the power of sale action.
More on Notices of Sale in the next 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.