May 14, 2022
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part LXXIV of a Series – Ask Me Anything Part 8…
In the previous ‘power of sale’ blog LXXIII posted earlier this month, I reminded readers that a writ of possession is not needed in order for a mortgagee to take possession of mortgaged property - when the mortgage is in default. This post takes another look at the 3 month interest ‘penalties’ that mortgagees like to charge when their mortgage is in default and the mortgage debt is being repaid.
Why did I hyphenate ‘penalties’, you may be asking yourself? The answer is that the word penalty is verboten. The Courts will not enforce the collection of a penalty, because lenders have no right to extract a penalty from the borrower/mortgagor. So, if a mortgagee wants to collect an extra 3 months’ interest, the mortgagee should not be calling that amount a penalty. I’d rather just refer to it as a 3 month interest payment, or something like the phrase ‘interest indemnity’. Just don’t be calling it a penalty, please.
Of course, if a mortgage is open for prepayment, and not in default, the mortgagor can just repay the principle amount outstanding without having to pay an extra 3 months’ interest. A closed mortgage that is not in default cannot be repaid at all by the mortgagor. So, in that scenario, a mortgagee could ask for and demand an extra 3 months interest to be paid in exchange for accepting the payment of the outstanding mortgage amount before the maturity date.
But when the mortgage is in default, and either the mortgagor is trying to repay the mortgage debt or the mortgagee is enforcing the mortgage, the terms of the mortgage contract itself become relevant, as does section 17 of the Mortgages Act. I’ll take a deeper dive into both in the next post.
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