Originally published in Blakes Bulletin on Real Estate
Mortgage Enforcement, October 2008
The terms of most mortgages provide that the borrower is
permitted to have possession of the mortgaged property prior to
default and the lender is entitled to take possession of the
mortgaged property after default. When a borrower defaults on its
obligations under a mortgage, it is not uncommon for the lender to
take possession and assume control of the mortgaged property in
order to facilitate a sale.
The lender may take possession of the mortgaged property
directly, either privately or by court order. Alternatively, the
lender may take possession indirectly through a receiver appointed
pursuant to terms of the mortgage or by court appointment. The
lender may sue for possession by filing a statement of claim or
take possession without a court order, if possession can be
obtained peacefully. This could be accomplished by the lender
simply changing the locks and taking possession. However, a lender
who enters into possession of the mortgaged property prior to being
entitled to do so will be liable for damages to the borrower. Where
possible, consideration should be given to negotiating an orderly
change of possession.
What are some of the primary considerations which should be
taken into account by the lender prior to taking possession of the
mortgaged property? After ensuring that it is entitled to take
possession, a lender should ask itself:
Who is in possession of the mortgaged property?
If the mortgaged property is occupied by tenants, what are the
details of the leases? Is there a current rent roll available?
Of the tenants in possession of the mortgaged property, which
of them does the lender wish to keep in place or evict?
What is the debt-service ratio? Does the mortgaged property
Are there any prior encumbrances required to be kept in good
standing? Are there any significant arrears of utility charges or
If the lender intends to take possession, does the lender have
available to it the expertise necessary to operate the mortgaged
Does the lender have a property manager "waiting in the
wings" to take over the mortgaged premises?
Alternatively, does the lender intend to appoint a receiver?
Who is the proposed receiver?
Has the receiver been properly appointed and duly
What is the timing involved? Must possession of the mortgaged
property be taken immediately? When should possession be
The answers to these questions will influence the lender's
strategy and decision-making. For example, in certain
circumstances, the lender may wish to have the borrower continue to
occupy the premises as a tenant or licensee of the lender.
Alternatively, a new tenant may be found for the mortgaged
property. From a practical point of view, it is important for the
lender to have the mortgaged premises occupied to avoid the
inconvenience of supervising a vacant property.
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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