The Mortgage & Mortgage Remedies
GENERAL OVERVIEW
This is law information, not legal advice
Most people purchasing real property – land, condo, house, or building – will require mortgage financing.
The person or institution providing monies for the purchase of that property will require a mortgage – essentially a promise to pay the debt back according to agreed terms and applicable interest and the money lender (the mortgagee) will also require the property as security.
If the debtor, as registered title holder, defaults on the payment plan, then the mortgagee usually has several remedies at their disposal.
The mortgagee may (i) remove the owner from the property and take possession, (ii) take power of sale proceedings under the terms of the mortgage (and what is permitted by statute), (iii) seek the assistance of the courts in a judicial sale or foreclosure, or (iv) sue on the promise to pay.
In general terms, under a judicial sale or power of sale that occurs by contract or statute, after taking the required steps, the property may be sold, and the mortgagee paid to the extent of the debt (and the costs of taking default proceedings). If there is any excess, the mortgagor (the person who had title) is given the remainder of the sale money.
But if a power of sale does not yield sufficient finds to pay the mortgagee the debt and costs expended, then the debtor may be pursued on the promise to pay the debt to the extent of the shortfall.
In a foreclosure, which always occurs under court supervision and approval, the creditor-mortgagee is allowed to become owner of the debtor’s property because of the default and the indebtedness is fully satisfied in that way.
A person seeking a mortgage for a residence or business purchase of real property is usually not lent more than 80% of the market value of the property. In residential purchases, high ratio financing may be available and, in those instances, the amount lent out may be 95%.
But where high ratio applies, the borrower must also pay a one time up front fee for insurance to protect the money lender should there be a default.
For an individual to have some assurance that the purchase can be afforded, a conservative rule-of-thumb is that no more than 25% of after-tax income should be used to make mortgage payments. (Copyright 2022) The book Canadian Law and Business Studies has a full chapter on mortgages and mortgage remedies. Look inside the book at this site: https://bit.ly/3Ay0lSR.
Questions and Answers Follow
What mortgage can I afford? You and your partner should take as much time as necessary to figure out what money you could consistently commit to paying for a mortgage. As a mortgagor, you will also become a property owner, so you will be paying for more than just mortgage payments. A homeowner has municipal taxes, water, waste, electricity, and gas charges. In a condominium, there are monthly condominium fees which may range from half a dollar to one dollar per square foot of space. In a house purchase, there will be on-going repairs. You should allocate 1% to 3% of the purchase price towards repairs and maintenance. When you purchase a house or condo, you will also have some upfront closing costs: land transfer tax, lawyers and possibly mortgage broker fees. There will be moving costs. If you are a renter, you will have to coordinate your leaving with your acquisition. These are not the only costs, but they give you an idea of what to expect. Apart from what you believe you could allocate to a mortgage and homeownership, the bank or mortgage company giving you a mortgage will have its own criteria and formula to determine if you can afford the mortgage, you think you want. The book Canadian Law and Business Studies has a full chapter on mortgages and mortgage remedies. Mortgage remedies apply if you default on your mortgage payments. In that event, the money lender, in most instances, may take the property. Look inside Canadian Law and Business Studies at this site: https://bit.ly/3Ay0lSR.
Why a mortgage broker vs. a Bank? As suggested elsewhere, a money lender will have its criteria for lending out the bulk of the purchase money for a condo or house purchase. The application you fill out at the bank will be accepted or rejected based on the Bank’s own criteria. A mortgage broker may charge a fee for its services, but it has access to several money lenders – banks and other money lenders. The other money lenders are apt to be institutions that lend out money. But a broker can even have private money lenders – individuals who wish to lend out money based on your mortgage commitment. While you may prefer to deal with a bank, to qualify for the mortgage you want, a mortgage broker may have to shop around to see if there is a money lender willing to “to do business” with you in a mortgagor-mortgagee relationship on the rates, terms, and conditions it specifies.
How a mortgage works in Canada? In very basic terms, looking at a condo or house purchase, the bulk of the money for such a purchase comes from a money lender (the mortgagee). That money lender wants your signed promise to pay back that mortgage on the terms agreed to and the money lender wants your condo or house as security. Accordingly, if you default on the pay back plan, the money lender can take the property as their own or sell it to acquire the money to pay itself the amount lent out and accrued interest and costs of enforcement. The book Canadian Law and Business Studies has a full chapter on mortgages and mortgage remedies. Look inside the book at this site: https://bit.ly/3Ay0lSR.
AVOID PARTICIPATING IN MORTGAGE FRAUD: An agreement to buy property can and should be conditional upon you finding satisfactory mortgage financing. As a buyer, you do not waive that condition until you have a written commitment to provide mortgage financing on terms satisfactory to you from a money lender - preferably, an institutional money lender. To better understand how you might be caught up in illegal “activity”, see the CBC program below and consult with your own lawyer: Mortgage fraud caught on camera: Undercover investigation (Marketplace) - Bing video
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We encourage you to visit us at our alternate website: https://www.fera-gasparini.ca/ and also to have a quick look inside our great new book on
Canadian Law and Business Studies: https://bit.ly/3Ay0lSR.
This book contains a full chapter on "Mortgages and Mortgage Remedies".
MORTGAGE DEFAULT AND MORTGAGEE'S REMEDY: In the Mukendi case, part of the security was a blanket collateral mortgage in the amount of $500,000 on two properties owned by the defendant.
BMO acknowledged that it could only enforce the mortgages to a maximum of $500,000 – whether against one of the properties or against both. The court found this consistent with the mortgage contract as a whole, given the words used and ascribing to them their ordinary and grammatical meaning, this was consistent with the surrounding circumstances known to the parties at the time the mortgage contract was signed. SOURCE: Bank of Montreal v Mukendi-Yabondo, 2022 ONSC 6301 (CanLII).
Nothing on this website should be construed as legal advice.
Copyright 2022