By Graydon Ebert, Associate
Either through an express term of your mortgage or under the statutory provisions set out in the Mortgages Act your mortgage lender has a right to sell your property under power of sale should there be a default in payment of money due under the mortgage after a specified time and after providing a certain amount of notice to required parties.
The purpose of this blog is not to discuss the procedure to properly put a property under power of sale, but rather to discuss a borrower’s right to redeem its mortgage should the property be put under a power of sale.
If the mortgage lender has commenced power of sale proceedings, section 22(1) of the Mortgages Act permits a borrower to bring the mortgage into good standing after default and acceleration of the mortgage debt before an action for enforcement of the mortgage has been commenced and before there has been a sale of the mortgaged property. This essentially means that until the mortgage lender has sold your property, you have the right to repay all money due under the mortgage and any expenses incurred by the mortgage lender and the mortgage lender will not be able to sell your property.
The question becomes: when has there been a sale of the property? There was a discussion in our office about what constitutes a sale, with some arguing that there has been a sale when the mortgage lender enters into an agreement of purchase and sale with a third party, and others arguing that the sale does not happen until the transaction with the third party has closed.
Given, the difference of opinion in the office, I set out to figure out when exactly a “sale” has taken place under the legislation. The early case law interpreted “sale” as the acceptance by the mortgage lender of a third party’s offer to purchase the property. This meant that as soon as the mortgage lender had a binding agreement with a third party to purchase the property, the borrower no longer had the ability to redeem their mortgage and put it in good standing.
Subsequent cases went in a different direction and held that if the agreement of purchase and sale with the third party and the mortgage lender specifically provided that the borrower had to redeem the mortgage up until closing, that the sale is conditional upon the borrower not exercising its right to redeem and therefore is not a “sale” under the legislation until the closing of the transaction.
Obviously, this would explain the different answers in our office. However, a case of the Ontario Court of Appeal, Logozzo v. Toronto-Dominion Bank, seems to have resolved the debate. In this case, the borrower had granted a mortgage to the mortgage lender which went into default and for which a notice of sale was served. The mortgage lender entered into an agreement with a third party to purchase the property which had a clause that the purchaser understood that the borrower had the right to redeem the property up to the time of waiver/expiry of all rights of termination or fulfillment of all conditions. Subsequent to the mortgage lender entering into the agreement to sell the property to a third party, the borrower accepted an offer to sell the property. The borrower requested that the court set aside the TD Agreement.
At trial, the judge held that while a binding agreement of purchase and sale is a “sale” under the legislation, if the agreement contemplated a right of redemption continuing after the date of the agreement then the borrower’s right to redeem was preserved until closing. The Court of Appeal overturned the trial judge and held that a borrower’s right to redeem cannot be extended past the date when the agreement of purchase and sale is entered into with the third party for two reasons. If the rationale behind the previous decision was that the sale was conditional, this was incorrect because the borrower had not yet paid or tendered the redemption funds, and as such the borrower could not rely on its right to redeem. If the rationale was based on the fact that the agreement provided for a right to redeem, it was incorrect because the borrower was not a party to that agreement and could not enforce it.
What does this all mean? If you own a property and you have been served a notice of sale by the mortgage lender, to exercise your right to put the mortgage back in good standing, you must do so before the mortgage lender has a binding agreement to purchase the property with a third party. If you plan on putting your mortgage in good standing, you must act fast or risk the chance that the mortgage lender will enter into an agreement with a third party and you will lose your opportunity.
If your mortgage lender has begun power of sale proceedings against your property, and you want to know your rights, do not hesitate to contact one of our real estate lawyers.