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May 23, 2022

THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part LXXV of a Series – Is Ontario still a Self-Help Remedy Jurisdiction - part 1 of a series??

Over the past few years I have written various posts (see, for example, Post XXI and Post XXX and the recent Post LXXIII) reminding readers that for at least the past 150 years, Ontario has been a ‘self-help’ jurisdiction for mortgage enforcement. This means that when a mortgagee intends to enforce the power of sale set out in its real property mortgage, the mortgagee may do so without resorting to the Courts and without obtaining a Court Order.

Put more simply, the law in Ontario has always been that there is no need for a mortgagee to first obtain a writ of possession before physically taking possession of mortgaged property in Ontario. The only limitation on the exercise of the self-help remedy of taking possession (without a court order) is that a mortgagee cannot breach the peace when taking possession. This means that the mortgagee has to take possession in a peaceful and non-violent manner.

This is in stark contrast to the other Canadian jurisdictions in which mortgagees are required to utilize the Courts and the Courts’ processes in order to enforce mortgages by way of foreclosure or by way of sale under power of sale.

A review of real property and mortgage texts written over the past century espouse this ‘self-help’ rule. And judges have supported this self-help reality for Ontario mortgagees time and time again. Until May 18, 2022, that is. Because just last week, on May 18, 2022, Her Honour, Justice Christie, overturned centuries of common law by deciding in the Zapfe Holdings v 1923159 Ontario Inc. matter (not yet published on Canlii), that when a mortgagee of commercial property chooses to use self-help and take physical possession of a mortgaged commercial property without a Court Order and without a writ of possession, that could lead to chaos and police involvement; may discourage mortgagees from reaching “fair and reasonable resolutions to remedy defaults by mortgagors”; may led to chaotic and unsafe circumstances; and it [taking possession without a court order or writ of possession] might even constitute a criminal offence.

And so, just like that, Ontario may no longer be a self-help jurisdiction! And this is despite section 7 of the Mortgages Act which provides that the mortgage is deemed to include a covenant by the mortgagor: "that on default, the mortgagee shall have quiet possession of the [mortgaged] land...". And this is despite section 7 of the Land Registration Reform Act which provides that “in a charge of freehold …. land by the beneficial owner:

  • that the chargee on default of payment ……. may ……… enter on and take possession of, receive the rents and profits of, lease or sell the land; and
  • that where the chargee enters on and takes possession of the land on default …….the chargee shall have quiet enjoyment of the land. 

And this is despite the terms of the mortgage contract, standard charge terms 200033, which state that:

  • in the case default be made in the payment of the principal amount or interest or any part thereof and such default continues for two months ……then the Chargee may exercise the foregoing powers of entering, leasing or selling or any of the them without any notice….
  • [and] upon default in payment of principal and interest under the Charge. …..the Chargee may enter into and take possession of the land hereby charged ………..[whereupon] the Chargee shall enter into, have, hold, use, occupy, possess and enjoy the land without the ...... hindrance, interruption or denial of the Chargor or any other person or persons whomsoever…..”.

Now, remember, that in the Zapfe Holdings v 1923159 Ontario Inc. matter, we were dealing with a commercial mortgage that had been in default for almost 8 months, and under which a notice of sale had been issued and the 35 day redemption period had expired. The mortgagee had already commenced collecting rent from a commercial tenant at this property and likely was already the mortgagee-in-possession of the mortgaged property before changing the locks and entering into physical possession of the commercial property quietly and peacefully in the early morning hours of May 18, 2022.

But the presiding judge was more concerned with the fact that:

  • the mortgagor was incensed by the loss of physical possession
  • the mortgagor called the OPP when he discovered that the mortgagee had locked him out of the commercial property
  • the OPP attended at the property and took the mortgagor’s side in this civil dispute
  • and as soon as the mortgagee’s property manager and locksmith left the mortgaged property, the mortgagor used a bolt cutter to re-enter the mortgaged property.

Needless to say, this decision will be appealed to the Ontario Court of Appeal. So, stay turned.....

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. If you are looking for a copy of this endorsements, feel free to call me .... 416.662.9550

Be well and stay healthy