Dec 11, 2021
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part LXV of a Series – Mortgage Statements Part 11
In the previous Post LXIV I reviewed the rules that govern discharges and assignments of mortgages.
You will recall the general rule that allows an owner or a subsequent mortgagee to require a prior mortgagee to either discharge its mortgage security or, alternatively, to assign its mortgage security, when that prior mortgagee’s mortgage has been fully repaid.
But this general rule does not apply if the prior mortgagee is in possession of the mortgage property. And the reason for this exception to the general rule is because a mortgagee-in-possession has obligations imposed by the common law to take care of the mortgaged property for the owner, so that the mortgaged property may be returned to the owner in reasonable condition if the owner were to redeem the prior mortgagee’s mortgage security.
And these obligations as mortgagee-in-possession do not end just because the mortgagee is fully repaid and then assigns its mortgage security. The mortgagee who was a mortgagee-in-possession remains liable to the owner of the mortgaged property notwithstanding the assignment. And so the Mortgages Act allows the prior mortgagee-in-possession of the mortgaged property to refuse to assign its mortgage security and to discharge its mortgage upon a redemption.
The next post will look at how a mortgagee-in-possession can protect itself if it chooses to accept a payout/redemption from a lender who insists on an assignment (even though the mortgagee-in-possession is not obligated to assign). 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 power of sale and mortgage default 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.