Feb 08, 2021
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part XXXVIII of a Series – Examining Default Fees and Penalties part 4 of 5
My last 3 blog posts (Parts XXXV and XXXVI and XXXVII) have examined fees and charges and penalties that private mortgagees and some institutional mortgagees add to discharge statements (after issuing a demand letter or a power of sale). These mortgagees try to collect these penalties from the mortgagor when the mortgagor is in default under the terms of her or his mortgage. Most of these ‘fees and charges and penalties’ are unenforceable at law and cannot legally be collected by the mortgagee. As such, none of these ‘fees and charges and penalties’ should be paid by the mortgagor.
One such penalty that seems to be very common, and is often extremely costly to a mortgagor, is an increased interest rate that many mortgagees impose – and use to calculate the aggregate amounts owing under the mortgage – following a default. And very often the default is the maturity date of the mortgage.
So, let me make this very clear. The Interest Act of Canada and the common law in Ontario does NOT allow a mortgagee to use a higher interest rate after default than was agreed to for the original mortgage loan before default. These higher interest rates are also illegal and unenforceable. They cannot be charged by the mortgagee and also ought not to be paid by the mortgagor. They are simply a penalty charged by mortgagees and the Court in Ontario will not enforce these provisions.
And this is true even if the commitment letter says that the interest rate increases after default. And this is also true even if the mortgage contract itself says that the interest rate increases after default.
So, mortgagors and their lawyers have to refuse to pay these penalties. They are illegal. They are unconscionable. And like other ‘fees and charges and penalties’, are not enforceable.
The next post will examine briefly the 3 month interest penalty that a mortgagee often adds to a mortgage debt after default. 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 power of sale 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.