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Jun 08, 2022

THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part LXXVII of a Series – Is Ontario still a Self-Help Remedy Jurisdiction – part 3

Last week’s post LXXVI continued this latest series commenting on the May 18, 2022, court case known as Zapfe Holdings v 1923159 Ontario Inc. which ignored the long standing common law rule that has always allowed a commercial mortgagee (after default under its mortgage) to take possession of a commercial property without a court order for possession, so long as the mortgagee acts in a peaceful manner when taking possession.

A little history of mortgages seem appropriate at this point. When mortgages were first recognized in the English Courts of Law, the granting of a mortgage was a transfer, by the mortgagor to the mortgagee, of an interest in land (much like in a lease the landlord transfers an interest in land to the tenant). And one of the rights that was transferred by the mortgagor to the mortgagee was the right to possession of the lands. Put another way, for centuries, the common law has recognized and accepted that possession of the mortgaged property was a part of the “interest in land” that was transferred by the mortgagor to the mortgagee in the mortgage.

Over the centuries, it became common for the mortgagee to allow the mortgagor to stay in possession of the mortgaged lands, but only for so long as the mortgagor was not in default under the mortgage. This right of the mortgagor to have possession of the mortgaged property was a contractual right (as set out in the mortgage contract) and was conditional on the mortgage being in good standing and not in default.

This all changed in 1985, when the Land Registration Reform Act was passed in Ontario. The LRRA now codifies the common law in this area and provides that the mortgagee may enter on and take possession of ……. the mortgaged land (i) after default under the mortgage and (ii) only after giving to the mortgagor the notice specified in the charge or required by the Mortgages Act.

To summarize, the mortgagee now has the statutory right to take possession of the mortgaged lands:

  • if there has been default under the charge; and
  • if the mortgagee has given notice of the default to the mortgagor

And that is exactly what Zapfe Holdings did just last month. Its mortgage was in default and it had given notice to the mortgagor. And it had taken possession peacefully and peaceably in the early morning of May 18, 2022, before business hours. No one was around. It was a quiet and peaceful taking of possession.

Nonetheless, the judge said that Zapfe was in the wrong and should not have taken possession in that manner, ignoring both the common law and clear wording in the Land Registration Reform Act. The judge said that Zapfe was required to have gone to court first and obtained a judgment in a law suit against the mortgagor giving Zapfe the right to take possession of the mortgaged property. And then, she said that Zapfe ought to have obtained a writ of possession and then used the auspices of the local Sheriff in order to take possession.

Next post will examine in detail the various errors that I believe that the judge made in her reasoning quoted above. 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 Post LXXV