Importance Of Information-Gathering Before Choosing A Mortgage Enforcement Strategy

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Real Estate Mortgage Enforcement, October 2008

An indispensable initial step in the choice of the appropriate mortgage enforcement strategy involves the gathering of information by the lender and its legal advisors concerning the distressed loan. The goal of the information-gathering process is to obtain a complete understanding of the relevant facts and circumstances so that they may be collectively considered and the proper enforcement steps selected.

Information and documentation which should be obtained, collected and considered by the lender prior to choosing a mortgage remedy includes the following:

1. copies of the commitment letter, loan/credit agreement, mortgage and all collateral security documentation;
2. any appraisals obtained by the lender at the time of making the loan or subsequent thereto;
3. a survey of the mortgaged property;
4. a solicitor's report on the closing of the mortgage loan transaction;
5. copies of any demand letters that have been issued by the lender to the borrower to date;
6. the name of the present owner of the mortgaged property, the address of the mortgaged property and other known addresses of the borrower, any guarantors under the mortgage, and the spouse of the owner of the mortgaged property (if the mortgaged property is potentially a matrimonial home);
7. a brief legal description of the mortgaged property;
8. credit reports, if any, on the original borrower, any guarantors and the current owner of the mortgaged property;
9. information as to whether the mortgaged property is vacant or occupied and, if occupied, the names and status of the occupants as owners or tenants;
10. the amount owing on the mortgage for principal and interest, and the amount of all disbursements made by the lender and its counsel for realty taxes, insurance premiums, legal fees, and any other items that may be added to the borrower's indebtedness to the lender;
11. confirmation that fire and other property insurance coverage is in place;
12. copies of any notices of any liens or other interests in the mortgaged property received by the lender (e.g., liens in favour of any taxing authorities for unpaid taxes);
13. the date of default under the mortgage;
14. a copy of any demand for payment made on the owner of the mortgaged property, subsequent encumbrancers or guarantors and details of any payments made in response to such demands; and
15. details of any assignment of the mortgage to the current holder of the mortgage, where applicable, and a copy of any notice to the borrower of such assignment.

The information in the list above will not only assist the lender in determining which particular mortgage remedy or remedies it will wish to pursue (i.e., power of sale versus foreclosure or judicial sale), but will also help the lender comply with what are often strict technical rules of compliance in connection with the mortgage remedy to be pursued (e.g., the manner in which a notice of sale must be issued in connection with the use of the power of sale remedy).

The commitment letter, loan/credit agreement, mortgage and collateral security documentation should be reviewed by legal counsel as soon as possible in the proceedings in order to determine the events of default prescribed thereunder as well as the remedies available to the lender pursuant thereto upon the occurrence of an event of default.

A prudent lender will find itself well served by gathering this information at the earliest possible opportunity when a default appears imminent or after it has occurred. Good record-keeping can be invaluable as decisions will likely have to be made quickly and there may be delays in enforcement of the security if such documentation is not readily available.

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.