Dec 26, 2021
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part LXVI of a Series – Mortgage Statements Part 12
In the previous Post LXV I explained why a mortgagee in possession need only provide a discharge of its mortgage, and why it cannot be forced to assign its mortgage to a new lender who repays its mortgage debt. This post will take a look at why a mortgagee in possession might want to voluntarily assign its mortgage debt, and how it can best do just that.
As a general rule, a mortgagee would rather see its debt paid in full immediately, rather than wait for the closing of the sale of the mortgaged property under its power of sale. And so, a mortgage in possession of mortgaged property, is faced with a conundrum when a new lender offers to repay its mortgage debt, but insists on an assignment of the mortgage, rather than a discharge. Even though the mortgagee in possession is not obligated to provide an assignment, the benefits of full payout immediately, are often very tempting
What I have done in these circumstances, is use the ability of the mortgagee in possession to refuse to assign the mortgage as leverage to obtain:
- the new mortgagee’s covenant to indemnify the current mortgagee in possession
- the owner’s consent to retake possession from the current mortgagee in possession
- the owner’s full release of the current mortgagee in possession from all of its mortgage enforcement including having been a mortgagee in possession
These steps relieve the mortgagee in possession of all liability and allow it to give up possession (back to the owner) and get fully repaid in the process, with the added benefit of an indemnity from the new mortgagee.
With these three covenants (indemnity, consent and release) in hand and with full payment of the mortgagee in possession’s debt, the mortgagee in possession is in a way better position than if it were to have refused the payout and the assignment, and then proceeded with its intended sale under power of sale.
The next post will begin a new series answering questions posed to me by various lawyers in 2021. 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 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.