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Aug 18, 2020

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

One question that I often hear from client mortgagees holding mortgages in default is whether a formal court order is needed in order for the private mortgage lender to take possession of the mortgaged property from the owner or from the owner’s family?

The simple answer is that a court order for possession is not always needed. In Ontario, a mortgagee holding a mortgage in default may, subject to following the terms and conditions of the mortgage – especially the fine print, use what is called “self-help” and simply take possession of the mortgaged property:

  • by depriving the mortgagor of the control and management of the mortgaged property or, put another way
  • by taking any step or proceeding that is wholly inconsistent with the owner’s right to possess her or his property.

An obvious example is when a mortgagee changes the locks and secures the mortgaged property – with the intention to keep everyone (including the owner) out of the mortgaged property without the permission of the mortgagee. This will certainly make the mortgage a mortgagee-in-possession.

Self-help remedies in Ontario do come with a caveat. The mortgagee cannot breach the peace, a generic phrase meaning that the mortgagee cannot use force which results in actual or threatened harm to anyone. So, as a general rule, mortgagees usually use self-help remedies when the mortgaged property is found to be vacant. When occupied, mortgagees usually shy away from self-help remedies and instead, choose to use the Ontario Courts for assistance.

Utilizing the Ontario Courts starts with the issue of a statement of claim and and obtaining a judgment for possession. Then, using the Court’s Rules, the mortgagee will ask the Courts to enforce the judgment and issue a writ of possession to the judgment holding mortgagee. And finally, the mortgagee may enforce the writ of possession with the assistance of the local sheriff - who will take possession of the mortgaged property for the mortgagee.

While using the Courts process is slower, it does shield the mortgagee from becoming directly involved in the actual taking of possession – as it uses the offices of the local sheriff to physically remove the owner or the occupants when enforcing the writ of possession. But remember, security of tenure guarantees the rights of residential tenants to remain in the mortgaged property. A mortgagee can take possession from an owner, but then becomes the tenant's landlord under Ontario’s Residential Tenancy Act, with all of the responsibilities and liabilities that flow from being a residential landlord.

The next blog post will look at mortgage remedy litigation in more detail. And as always, 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.