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Jul 20, 2020

THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part XIX of a Series – What is a Mortgagee-in-Possession – part 1 of 3

 You have decided to enforce your private mortgage that is now in default. But you are faced with one of the major decisions of mortgage enforcement; should a mortgagee take possession of the mortgaged property? And if so, when is the best time for the mortgagee to do so?

The 3 important take-always about being a mortgagee in possession are:

  • taking possession of a mortgaged property comes with clear benefits for the mortgagee, but it also comes with responsibilities and risks that need be weighed against those benefits
  • being a mortgagee-in-possession definitely makes it easier for the mortgagee to sell the mortgaged property, but having possession is not a necessary pre-condition to the mortgagee exercising its power of sale
  • going into possession of a mortgaged property is relatively easy for a mortgagee to do, getting out of possession can prove to be much more difficult.

So, what is possession anyway? What does it mean when we talk about a mortgagee going into (or getting out of) possession? The answer is quite simple, really. Every owner of real property has the absolute right to be in possession of her or his property. That is why a home owner can simply live in her or his home without any third party permission. One of the fundamental attributes of real estate ownership is the owner’s right to possession.

Of course, there are different types of possession. Temporary possession, sometimes called a license, occurs when parking your vehicle in a parking lot or taking a seat at a movie theatre or baseball game. The owner gives the user the non-exclusive short term license to use the property. A more permanent form of possession is a lease, which gives the third party (tenant) the right (usually on an exclusive basis) to possession of the property during the term of the lease.

Virtually all mortgages in Ontario contain a clause in the fine print allowing the owner to stay in  possession of the mortgaged property so long as the owner keeps the mortgage up to date. But on default, the mortgage terms allow the mortgagee to take possession.

Once a default occurs in its mortgage, all that a mortgagee has to do in order to go into possession of the mortgaged property is to usurp the owner’s right to possess her or his property. That is, the mortgagee becomes a mortgagee-in-possession when the mortgagee does something wholly inconsistent with the owner’s right to possess her or his property. For example, changing the locks and actually going into the mortgage property will certainly make the mortgage a mortgagee-in-possession.

The next blog will continue to examine possession issues; including looking at some of the risks and benefits and timing of taking possession. 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.