Given the "credit crunch" and its unfortunate side effects, we thought that a series of four bulletins dealing with Ontario mortgage enforcement would be timely, particularly for our lending clients. For those of you without mortgage enforcement experience, these bulletins will serve as an introduction to mortgage enforcement. For those of you with mortgage enforcement experience, we hope these bulletins will serve as a refresher.
The first bulletin in this series deals with the issuance of demand letters and notices. The second bulletin looks at the various types of remedies available to a lender enforcing its security and some strategic planning to keep in mind. The third bulletin takes a closer look at some of the advantages and disadvantages of the power of sale and foreclosure remedies. The last bulletin in this series focuses on how a lender selling a property under the power of sale proceeding can protect itself in the agreement of purchase and sale.
When a loan goes into default, a lender must assess how it can best recover the outstanding indebtedness, including the decision whether to realize on its security. We can help you with this initial assessment. We would be pleased to work with you to create a comprehensive strategy to deal with the nuances of your particular mortgage enforcement situation, to ensure any proceeding or action goes as smoothly as possible and to ensure that there are limited surprises down the road. (Please note that these bulletins are drafted from an Ontario law perspective. We would be pleased to discuss any mortgage enforcement questions you might have for the other Canadian provinces).
B. Demand Letters
" Generally, a lender, or its solicitors, should send a written demand letter to the borrower, and any guarantors, prior to actually commencing any remedy against the borrower for default.
- " The letter should outline the default and the
requirement for payment or cure within a certain time period
having respect to the terms of the loan documentation or
under common law, failing which the appropriate legal
proceeding may be commenced without further notice.
- " The lender must look to the specific language of
the security documents and common law to determine the
minimum payment or cure period that must be provided.
- It is important to review the security to ensure that
other notice requirements are strictly complied with. For
example, sending the notice by fax or email may not be
- A demand letter is a relatively inexpensive initial step
and may have favourable, inexpensive results:
- the default in payment may have been an oversight (e.g.,
new pre-authorized account, failure to provide post-dated
- the demand letter might spur the borrower to rectify the
- the "surprise" of skipping the demand letter
(where the lender could legally do so) and going straight to
a mortgage enforcement could irreparably damage the
- if sufficient particulars of a non-monetary default are
provided in the demand letter, the demand letter can guide
the borrower on how to bring the mortgage into good
- If there are circumstances where you believe a demand
letter should not be part of your mortgage enforcement
strategy (e.g., the borrower is a suspected fraudster), we
would encourage you to contact us immediately to discuss your
proposed mortgage enforcement strategy.
For the sake of efficiency and cost saving purposes, the lender, or its solicitor, should also send a notice under the Bankruptcy and Insolvency Act and the Farm Debt Mediation Act, if applicable, at the same time as the final demand letter.
Bankruptcy and Insolvency Act ("BIA") Notice
- The BIA requires a secured creditor to provide 10 clear
days' prior written notice (in the prescribed form)
of its intention to enforce its remedies against all or
substantially all of the inventory, accounts receivable or
other property of an insolvent debtor.
- This permits an insolvent debtor to file notice of its
intention to make a proposal to its creditors and stay any
- It may not be clear when a borrower falls under the
definition of an insolvent debtor, therefore it is common
practice to issue this notice as a matter of course.
Farm Debt Mediation Act Notice
- If the property is a "farm" and the borrower is
a "farmer" under the Farm Debt Mediation
Act, then the lender is required to give the borrower 15
business days' prior written notice of its intent to
enforce any remedy against the borrower's property or
to realize on any security.
- The notice must also advise the farmer of the
farmer's rights to apply for a review of the
farmer's financial affairs, mediation with creditors
and a stay of any proceedings.
- The farmer's right to apply for a review is
contingent upon the farmer being currently engaged in farming
for commercial purposes and being an insolvent person.
Commercial Real Estate Group
Our Commercial Real Estate Group consists of more than 50 experts across the country in all facets of commercial real estate law. We provide excellent creative legal advice to a broad spectrum of clients including developers, builders, pension funds, private financiers, lending institutions, private, public and crown corporations, national and international business communities, including aerospace and airlines, banking and finance, securities, manufacturing, construction, insurance, government agencies, natural resources, high technology, retail, transportation and real estate.
Our services include:
Acquisition and Development
Negotiation and preparation of all documentation relating to the acquisition, development, construction, financing and marketing of commercial, industrial and residential properties, including:
- Retail plazas
- Office buildings
- Business parks
- Apartment buildings
- Condominium projects
- Mixed-use developments
- Residential subdivisions
- Shopping centres
Negotiation of arrangements between private enterprise and governmental bodies relating to land and infrastructure development. Formulation and preparation of proposal calls for public/crown corporations and all ancillary agreements.
Construction and Infrastructure
Negotiation and preparation of construction contracts. Negotiation, structuring and financing of infrastructure projects.
Financing and Restructurings
Mortgage enforcement and preparation of all notices and court documents on behalf of lenders. Negotiation and preparation of all financing documentation on behalf of private and institutional lenders and borrowers, for project and term financing. Negotiation of arrangements between investors and developers pertaining to the restructuring of financial affairs, including attending to all due diligence matters.
Negotiation and preparation of all documentation relating to the acquisition, development, construction and financing of hotels, including advising with respect to all related issues including, hotel management agreements, licensing agreements, employment issues, co-owner arrangements, liquor licensing agreements and franchise agreements.
Performance of due diligence reviews and advising on compliance with laws and regulations, advising on obtaining required authorizations and licences and on co-ordinating environmental audits and clean-ups. Negotiation of environmental representations and warranties, advising on the management and disposal of contaminants and their transport, storage and export, and providing representation before administrative tribunals, the civil courts and in governmental inquiries related to these matters.
Advise and assist on all aspects of zoning and planning work, including securing approval of amendments to zoning, advising on expropriation and permitted land uses and the appeal of realty tax assessments. In Québec this includes representation before the Tribunal Administratif du Québec to contest municipal valuation assessments of major hotel, office, commercial and industrial properties.
Long Term Ground Lease
Negotiation and preparation of long-term ground leasing arrangements for both public and private sectors.
Negotiation and preparation of all leasing documentation for retail centres, business parks, office buildings and warehouses.
Structuring, assistance, negotiation and preparation of all condominium documentation, including project financing documentation, declaration, by-laws and rules, disclosure statement, development agreements and sales agreements.
Negotiation and preparation of all documentation required to form real estate syndicates and partnerships, as well as co-tenancy and joint venture arrangements for developers.
Negotiation and preparation of all required documentation and advising with respect to the entering into and the structuring of limited partnerships.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.