Originally published in Blakes Bulletin on Real Estate
Mortgage Enforcement, October 2008
After the lender has completed its information and documentation
gathering as an initial step on the path to the selection of the
appropriate mortgage enforcement strategy, it will need to take the
following factors into consideration before settling on the
What is the market value of the mortgaged property? Is the
market value rising or falling?
Are there co ownership or partnership arrangements involving
the property and the borrower?
What is the structure of the mortgage security? For example, is
the mortgage collateral security to the obligations of the borrower
as guarantor under a guarantee of the indebtedness of the
borrower's company? Does the security include a charge on
Does the security involve any leasehold interests? Do any
landlords need to receive notice and opportunity to cure?
Is the borrowing facility cross defaulted or cross
collateralized with other facilities or properties?
What are the prerequisites to triggering the right to realize
under the security? Must a demand be given? If so, is a reasonable
time for payment required? Are there special requirements for
notice to guarantors?
What powers are available to the lender in the security
documentation? Is there a power of sale provision and a
Are there any prior or subsequent mortgages or encumbrances
that need to be dealt with?
Is the mortgage insured by a mortgage insurance company? If so,
what are the rules and policies of the mortgage insurer?
What is the financial strength of the borrower, the guarantors,
if any, the current owner of the mortgaged property and any
subsequent encumbrancers such as a second lender?
Who is in possession of the mortgaged property? What is the
nature and physical state of the mortgaged property? Do any steps
need to be taken to safeguard the property or to avoid
environmental or other degradation or deterioration?
If the mortgaged property is an income-producing one, does the
cash flow presently generated from the mortgaged property cover the
payments to prior encumbrancers, if any, such as a first lender,
expenses such as taxes and maintenance, and the principal and
interest due under the mortgage?
How does the interest rate under the mortgage compare to
current rates? A lender should be wary of a "wilful
default" situation. A borrower who has entered into a high
interest rate mortgage may be trying to "break the
mortgage" when interest rates have declined.
In any steps taken to restructure, renegotiate, provide
indulgences or enforce security, it is important that the lender
take all relevant factors into account in advance of starting down
any particular path. A strategy should be developed that takes into
account all relevant factors including the matters set out
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.
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