Jul 27, 2020
THE NEW REALITY: PRIVATE MORTGAGE LENDERS’ RIGHTS AND REMEDIES - Part XX of a Series – What is a Mortgagee-in-Possession – part 2 of 3
The Courts in Ontario, through decades and decades of jurisprudence, have created mortgage remedy parameters which above all else preserve and protect the right of the mortgagor to redeem the mortgage. That is, the mortgagor is always able to repay the mortgage debt and be relieved of the consequences of default - right up until the sale of the mortgaged property by the mortgagee.
This holds true even after the mortgagee takes possession of the mortgaged property. For once in possession, the mortgagee must keep and maintain the mortgaged property for the benefit of the mortgagor. This obligates the mortgagee to make decisions regarding the mortgaged property as would a prudent owner. Why? In case the mortgagor is able to redeem the mortgage and repay the mortgage debt, the mortgagee in possession must ensure that the mortgagor will get back the mortgaged property in the same condition (wear and tear excepted) as existed when the mortgagee became a mortgagee in possession.
For this very reason, a mortgagee becomes a mortgagee in possession when she or he deprives the mortgagor of the control and management of the mortgaged property. This might include actions such as:
- leasing all or part of the property
- paying realty taxes
- paying utilities
- retaining a property manager - for upkeep and/or repairs
- paying prior ranking mortgagees
No one of these steps will be determinative. The courts always look at all of the facts to decide whether the mortgagee is in possession, or not. But once in possession, two things are clear:
- the mortgagee has a high duty to preserve and protect the mortgaged property
- the mortgagee cannot easily get out of possession once in possession
Also, remember always that a mortgagee in possession can be liable for pre-existing environmental damage to the mortgaged property, so great care must be taken by the mortgagee before making the ultimate decision to go into possession.
On the other hand, there are many benefits to being a mortgagee in possession. Of course, actual possession is one of them. That allows the mortgagee the opportunity to appraise and to list and sell the mortgage property as would an owner. Another is the right of the mortgagee in possession to lease all or parts of the mortgaged property and to receive the rents payable by any tenants. Additionally, the mortgagee in possession is also able to open new utility accounts and to receive utilities, even if the owner is in default with those utilities.
More on possession in the next blog post which will deal with self-help, keeping the peace and review some of the risks and liabiltiies of being in possession. 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.