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Jun 29, 2020

THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part XVII of a Series – After the Notice of Sale (During the Redemption Period)

Previous posts Part XI and Part XII and Part XIII have introduced and dealt with various notice of sale issues.

In this post I will examine the rules that a lender must follow after issuing a notice of sale. To get started, it is helpful to appreciate that a notice of sale is very different from a demand letter. While both the notice of sale and demand letter give the mortgagor a period of time to pay the debt, the notice of sale also warns the mortgagor that if payment of the debt is not made within the 35 day notice period, sometimes called the ‘redemption period’, then the mortgagee can sell the mortgagor’s property. And of course, a sale of the mortgaged property is catastrophic to the owner/mortgagor. She or he loses everything on a sale under power of sale.

That is why I like to think of the notice of sale as a demand letter on steroids – with dire consequences to the owner/mortgagor if the demanded sum is not paid on a timely basis.

Remember, that the notice of sale itself must:

  • be signed by or on behalf of the mortgagee
  • properly identify the mortgage in default
  • set out the principle and interest and costs owing under the mortgage in default

so as to allow the mortgagor/homeowner the ability to redeem the mortgage and pay it off in full.

And after the notice of sale has been given, the rules are equally specific and debtor-oriented. First, and foremost, because the notice of sale is intended to give the mortgagor ample time to redeem the mortgage (meaning to repay in full the entire debt secured by the mortgage) the mortgagee cannot do anything during the redemption period to make it more costly for the mortgagor to redeem. That is the reasoning behind the rule prohibiting the mortgagee from taking any further steps to enforce the mortgage until after the redemption period has elapsed. This rule also applies when just a demand for payment is made under a mortgage. In both cases, the mortgagee should consider its mortgage enforcement stayed until the end of the demand period or until the end of the redemption period. No additional costs may be incurred by the mortgagee during this stay.

Of course, there are exceptions to this rule (like most rules). One notable exception is that the mortgagee may take steps to prevent waste from occurring at the mortgaged property (waste is a technical term for the diminution of the condition or value of the property). There are other exceptions, too.

Secondly, after a notice of sale is given and before the redemption period expires, the mortgagee should not renegotiate the debt or renegotiate its repayment with the homeowner/mortgagor who is in default, as doing so can invalidate the notice of sale. With these two post-notice of sale rules in mind, the mortgage lender is well on its way to recovering as much of its secured debt as is possible, as quickly as is possible.

The next post will look at the mortgage remedy and enforcement steps that follow the issue of a notice of sale. And remember, that 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.