Apr 17, 2022
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part LXXI of a Series – Ask Me Anything Part 5…
In the previous ‘power of sale’ blog LXX posted last week, I continued a multi-part AMA – Ask Me Anything – series and examined private sales of homes by a mortgagee exercising a power of sale. This post will answer the question: "May a mortgagee purchase the property that it is selling under power of sale?"
While the general rule has long been that a mortgagee selling a property under its power of sale cannot buy that property, this rule is wrought with exemptions and exclusions. For example, Canadian banks governed by the Bank Act of Canada are, technically, allowed to purchase the properties that they are selling under power of sale. However, this is very rare, as banks typically do not want to be perceived as ‘profiting’ from a customer’s financial woes. And the rules in the Bank Act are unusual (to say the least) and have not been tested in court. Also, section 41 of the Conveyancing and Law of Property Act of Ontario appears to allow a mortgagee to sell property under power of sael to itself, but that statute, enacted in 1933, appears to have never been reviewed or interpreted by the courts. And therefore, this section 41 cannot be relied on as determinative.
And there is an exception to the general rule, which permits (in certain circumstances) a corporation (that has the mortgagee as a shareholder) to purchase a property being sold under power of sale by that shareholder/mortgagee. However, there are strict requirements placed on the mortgagee selling in this type of transaction. Basically, the courts will thoroughly scrutinize the entire transaction, and only if the mortgagee fulfills its duties as mortgagee selling under power of sale will the court approve the sale to a corporation of which the mortgagee is a shareholder. This same scrutiny will apply to sales under power of sale by a mortgagee to a spouse or other relative of the mortgagee.
Lastly, the Ontario Court of Appeal recently reminded us that a party, like a Receiver, who is acting as agent for a mortgagee, may sell to a corporation in which that party has an interest. But only if the party can establish clearly that it took reasonable steps to obtain a proper price for the property and that it otherwise acted in good faith.
Bottom line, a mortgagee cannot purchase a property that it is selling under power of sale. That much is clear. The next post will answer this question: "Can a mortgagee collect 3 additional months’ interest when selling the property under power of sale?"
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.