May 09, 2021
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part XLV of a Series – Power of Sale Litigation part 5
Post XLI started an in depth look at power of sale litigation. The previous Post XLIV looked at the parties who should be sued by the mortgagee. In this post, I will try to explain the theory that allows the mortgagee to obtain judgment under the mortgage from the current owners of a home - even if these current owenrs did not sign the mortgage in default.
This becomes relevant when the original mortgagors (who gave the mortgage to the mortgagee) sell the property and new home owners take over (assume) the mortgage. It could be simply that the property owner (let’s say, Mr. Smith) mortgaged the property. But then, after the mortgage was registered, Mr. Smith transferred the property to another party, say, Mrs. Smith. Or Mr. Smith may have transferred the property to third parties unrelated to him.
The mortgagee can sue Mr. Smith because he signed the mortgage and is liable, in legal speak, ‘on the covenant’. Meaning that Mr. Smith promised in the mortgage to pay the mortgage debt. And selling the mortgage does not release Mr. Smith from that contractual obligation. But what about the current owner or owners? How can the mortgagee sue them?
The answer is actually found in the Mortgages Act which says that the current owner of a mortgaged property is liable to the mortgagee under the mortgage as if the current owner had actually signed the mortgage document personally. But with a catch.
The mortgagee cannot get judgment from the courts against both the mortgagor who signed the mortgage and against the current owner who is liable because she or he is the owner of the home. The mortgagee can sue both, but the mortgagee has to make a choice and obtain judgment against one or the other. But not both.
The next post will look at the money side of power of sale litigation – what debts should the mortgagee include in the statement of claim. And of course, 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.