When a homeowner defaults on their mortgage, the lender has several options before it. This article discusses one of these options, which is called “power of sale”.
Briefly, the power of sale is the lender’s ability to take possession of the mortgaged property and sell it to a third party. For the lender to begin power of sale proceedings, it must provide notice of power of sale to everyone who it knows has an interest in the property. The lender can typically find this information in the parcel register for the property, which lists the “charges”, or registered interests in the land. Sometimes, the lender will also have actual notice in writing of any other interest in the property. The lender must provide notice to every person with an interest in the land of which they are aware.
Once the lender provides the notice of power of sale to those persons with an interest in the property, those persons have what is called the right of redemption. Those with an interest in the property can “redeem” the mortgage which has gone into default by giving notice to the lender that they are requesting to redeem the mortgage. A person who redeems the defaulting mortgage is given the opportunity to bring the mortgage into good standing, or pay off the entire debt, including legal fees of the lender.
However, where no interested person exercises their right to redeem during the redemption period of 35 days (40 days where it is a matrimonial home), the lender is allowed to take possession of the property and list it for sale.
CERTIFICATE OF PENDING LITIGATION
In some cases, the “interest” on the property is a Certificate of Pending Litigation, which is a notice registered on the title for land that announces to the public that the property is the subject of ongoing litigation. Typically, people who are looking to purchase a property will quickly become uninterested in a property that has a Certificate of Pending Litigation registered on title, because, depending on the outcome of that litigation, they may have an assortment of difficulties with title, ownership, and other issues.
What happens when a lender exercising power of sale signs an Agreement of Purchase and Sale with a buyer, and the buyer tells the lender to ask the Court to remove the Certificate of Pending Litigation on title?
The case of Royal Canadian Mortgage Investment Corporation Inc. v Mendes (“Mendes”) deals with this situation.
In Mendes, the homeowner had a mortgage on her house with a lender, and, during the time that the mortgage was in place, the homeowner’s brother registered a Certificate of Pending Litigation on the home. After this occurred, the homeowner went into default on the mortgage, and the lender sent out a notice of a power of sale to both the homeowner and her brother. Neither of them exercised their right to redeem, so the lender signed an Agreement of Purchase and Sale with a buyer. This buyer then asked the lender to go to court to have the Certificate of Pending Litigation removed from the title.
However, the Court told the lender that this was not the proper way to go about things. Instead, the Court noted that the Mortgages Act deals with this issue.
Once the lender, exercising power of sale, makes the statutory declarations that it is required to make and signs the Agreement of Purchase and Sale, so long as the lender has given proper notice of power of sale, as described above, then the purchaser of the home under power of sale receives good title. That is, the Mortgages Act will operate to give the purchaser good title, regardless of the Certificate of Pending Litigation, as long as: a) the lender gave proper notice of power of sale; and b) any interested party who had a right to redeem did not exercise that right.
The Court said that “once a binding contract of sale has been entered into by a vendor under a power of sale, the [borrower] has lost his right to redeem or sell the property”. Once the sale closes, and the property changes hands to the new owner, all rights that the Certificate of Pending Litigation gives to the person who benefits from it are extinguished. However, this does not remove the Certificate of Pending Litigation from the title; rather, it essentially erases all rights that the Certificate provides to the person who benefits from it.
After this occurs, then the Court can remove the Certificate of Pending Litigation from title to the property, but until then, it will remain on title.
TAKEAWAY
If you are involved in a property transaction, as purchaser or vendor, under power of sale, it is important to be aware that the Mortgages Act operates so as to give the purchaser good title on closing the transaction through power of sale, so long as the lender who started the power of sale proceedings gave proper notice made and the proper statutory declarations, as required by the Mortgages Act.
Should you have any questions relating to property transactions, power of sale proceedings, or mortgage disputes, please do not hesitate to reach out to one of Walker Law’s experienced litigation lawyers.
Tags: Civil Litigation Law, Residential Real Estate Disputes