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May 29, 2022

THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part LXXVI of a Series – Is Ontario still a Self-Help Remedy Jurisdiction – part 2 of a series??

Last week’s post LXXV was the beginning of a series commenting on the May 18, 2022, court case known as Zapfe Holdings v 1923159 Ontario Inc. which ignored literally centuries of common law when the judge decided that a mortgagee (whose first mortgage is in default) cannot take possession of a commercial property without a court order for possession, unless the mortgagor consents to the mortgagee taking possession.

Most of you will know that Ontario is a common law jurisdiction. This means that the provincial and federal governments make statute laws. And the courts hear cases dealing with those statute laws. The judges’ rulings in those cases then become the common law.

The common law in mortgage enforcement cases has been consistent and clear since the 1700s – the courts have always allowed a mortgagee to take possession of mortgaged property (when the mortgage is in default) without having to go to court and without having to first obtain a court order for possession. The only restriction on the right of a mortgagee to take possession on default has been that the mortgagee cannot breach the peace when taking possession. The mortgagee has to take possession in a civil and peaceful manner. And this is exactly what happened in the Zapfe Holdings v 1923159 Ontario Inc. case.

The Zapfe mortgage had been in default for months. The mortgagee had issued a notice of sale and the 35 day redemption period set out in the notice of sale had expired. The mortgagee attended at the mortgaged property early in the morning on May 18th when no one else was at the property – so that there would be no breach of the peace – and the mortgagee quietly and peacefully changed the locks and took possession. But then, later that same morning, the OPP were called and the mortgagor used bolt cutters to break the new locks installed by the mortgagee. Then the mortgagor broke back into the property and purported to re-take possession of the property.

The reasons written by the judge in her decision can be found here >. In this case, the judge wrote:

“The Applicant claims that Ontario is a “self-help” jurisdiction, in which the mortgagee can simply take possession in accordance with the contract.   It is the view of this court that mortgagees choosing to enforce in the manner in which this mortgagee chose will lead to chaos and police involvement as occurred in this matter.  It will also discourage parties from reaching fair and reasonable resolutions to remedy defaults where possible.  The typical power of sale process allows for notice and fairness.   A statement of claim could have been issued in this case many months ago.  This court is not convinced that a commercial property should be dealt with in any different manner than a residential property.”….

“The reason that lenders usually seek court orders prior to enforcing their right to take possession is that the taking of possession by force, even where the default is undisputed, may lead to chaotic and unsafe circumstances.   It may constitute a criminal offence.  The court should not encourage chaos or criminal offences.  It is the view of this court that the power of sale process creates a fair and level playing field for all involved, one that encourages resolution of problems.  This is what the court must encourage.”

Next post will take a look at possession from an historical point of view. 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


P.S. previous posts dealing with self-help remedies in mortgage remedy and power of sale enforcement include Post XXI and Post XXX and Post LXXIII and last week’s Post LXXV