Apr 23, 2022
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part LXXII of a Series – Ask Me Anything Part 6…
In the previous ‘power of sale’ blog LXXI posted last week, I continued a multi-part AMA – Ask Me Anything – series in which I explained why a mortgagee is not permitted to purchase a property that it is selling under its power of sale. This post changes course, and looks at the ability of a mortgagee to collect three additional months’ interest when selling the mortgaged property under power of sale.
The general rule to remember here is that a mortgagee can only collect principle and interest and specific out of pocket costs owing under the contractual provisions set out in its mortgage. So, at first blush, there is no common law rule that allows a mortgagee to collect 3 additional months of interest.
However, section 17 of the Mortgages Act changes that common law general rule. This section of the Mortgages Act has been interpreted by the courts so as to allow a mortgagor (when the mortgagor’s mortgage is in default) to require a mortgagee to accept payment of the amounts owing under the defaulted mortgage, either:
- upon receipt of 3 months’ written notice of the mortgagor’s intention to make such payment; or
- upon payment of 3 months’ interest on the principle amount in arrears.
While this section provides an obvious benefit to the mortgagor, the courts have also ruled that it may not be used by a mortgagee, when the mortgagee is selling the property under its power of sale.
But many mortgagees have inserted clauses into the mortgage contract that mirrors this section 17, sometimes with identical wording and sometimes with similar wording. While it is impossible to comment on each permutation and variation, again the general rule is that when a mortgagee is suing a mortgagor in court for amounts owing under a mortgage in default, or when a mortgagee is selling the mortgaged property under power of sale, the mortgagee cannot use this clause to collect the three months’ interest.
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. Call me .... 416.662.9550
Be well and stay healthy.