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Sep 05, 2020

THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part XXII of a Series - Taking Possession of Rented Residential Property – part 1 of 3

I act for a private mortgage lender who holds a mortgage of residential rental property. The mortgage has long matured with no sign of repayment from the mortgagor being immanent.

Last week, the mortgagee retained a property manager to take possession of the rental home. This was accomplished by changing the locks on all of the doors and by giving the new key to the tenant living in the mortgaged property. Changing the locks made the mortgagee a mortgagee-in-possession and, under the Mortgages Act, also made the mortgagee the landlord of the residential property in question.

There is really nothing noteworthy about this – a mortgagee of residential property who is enforcing its mortgage in default will inevitably take possession of the mortgaged property and become a mortgagee-in-possession in order to facilitate the listing and sale of the mortgaged property. Nothing noteworthy, until later that evening when I received a most unusual letter from the owner’s lawyer; who stated that (and I paraphrase only slightly)

  • his clients, the legal owners of the property, are in “lawful possession” of the property
  • no statement of claim or writ of possession has been issued by the courts
  • as the owners “are in peaceful and exclusive possession” of the property, any steps taken by the mortgagee to disturb or obstruct the owners’ “rightful possession” without a court order will be a “violation of [the] owners’ legal/charter rights and [will] be actionable in the Court of Law”

What fortuitous timing. My last 3 posts [Post XIX & Post XX & Post XXI) dealt with mortgagee-in-possession issues. And now I receive this letter from opposing counsel accusing the mortgagee of violating the mortgagors’ legal and charter rights merely by successfully taking possession of rented residential property.

This letter is an enigma. Because its author clearly has no understanding of the nuanced meaning (in law) of the word “possession”, especially possession of rental property; has confused some of the conditions precedent of adverse possession (peaceful and exclusive possession) with a tenant’s need for exclusive possession as a necessary precondition of the creation of a lease; did not even bother to read the mortgage document which allows the mortgagee to take possession; and is not aware that the common law condones self-help mortgage remedies in Ontario and thus wrongly believes that a Court issued writ of possession is needed in order for a mortgagee to take possession. And lastly, the letter’s author completely misconstrues Canada’s Charter of Rights and Freedoms by implying that is binds or even guides private contract law or mortgage enforcement law in Ontario.

Clearly, the law of mortgage remedies in Ontario is complicated. For this body of law is wrapped up in old common law concepts of real property ownership including possession of property, and relies heavily on the common law treatment of leases of real property, includes general contract law (as, fundamentally, a mortgage is a contract between the homeowner and the mortgagee) and ties into Ontario’s self-help mortgage enforcement regime.

I have decided to devote the next few posts to unpack these issues in a succinct and easy to follow manner while debunking of the author’s admonition that my client mortgagee’s taking of possession without a court order is in “violation of the owners’ legal/charter rights and [will] be actionable in a Court of Law”.

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.