Originally published in Blakes Bulletin on Real Estate
Mortgage Enforcement, October 2008
Instead of taking possession of the mortgaged property directly,
the lender may arrange to have a receiver take possession of the
property, collect revenues and pay expenses. A receiver can be
appointed pursuant to the specific provisions contained in the
mortgage or the lender may apply to the court for the appointment
of a receiver.
Consequences of Appointing a Receiver
On the appointment of a receiver of the mortgaged property:
the duties of the borrower, including its officers and
directors, over the mortgaged property are suspended;
the floating charges contained in the mortgage in favour of the
the borrower, if a company, is not dissolved and the receiver
does not become the assignee of the assets of the debtor; and
the borrower continues to be the registered owner of the
mortgaged property and the borrower is free to deal with those of
its assets not affected by the charge of the mortgage.
There are two major advantages to invoking a receivership clause
included in a mortgage, as follows:
the clause will usually allow the receiver to take a more
positive role in the administration of the mortgaged property than
that permitted a lender in possession; and
the lender may take the position that the receiver is the agent
of the borrower for certain acts and, therefore, a receiver may
expend more monies on improvements even if such expenditure may
ultimately impair the borrower's right to redeem.
The majority of receivership clauses contained in mortgages
provide that "the appointment of a receiver shall not have the
effect of constituting the lender a mortgagee in possession with
respect to the mortgaged property or any part thereof".
Notwithstanding such language, it must be recognized that, as a
practical matter, the receiver is taking possession of the
mortgaged property as the agent of the lender to realize on the
mortgage security. By taking possession, the receiver is depriving
the borrower of control over the mortgaged property and,
accordingly, such entry by the receiver would trigger the legal
implications of possession described elsewhere in this
If (a) the mortgage does not contain a provision entitling the
lender privately to appoint a receiver or (b) the mortgage does
contain such a provision but the language is not sufficiently
precise or comprehensive or (c) special problems arise, the lender
may apply to the court for the appointment of a receiver or a
receiver and manager, if the receiver requires broader managerial
powers. A receiver may not be appointed by the court if the result
of the order would merely relieve a lender from the
responsibilities of being a mortgagee in possession. Under Section
101 of the Courts of Justice Act (Ontario), the test to be
considered by the court is whether or not the appointment is
"just or convenient" under the circumstances.
It should be noted that, by applying to the court for a
receiver, the lender will be committing itself to seeking the
judicial sanction of the sale of the mortgaged property and to any
major actions that the receiver may take with respect to the
mortgaged property. Essentially, any sale would follow the
procedure of a judicial sale as opposed to a sale conducted by a
privately appointed receiver, which generally follows a procedure
similar to a private power of sale.
From the lender's perspective, the appointment of a receiver
by the court has the advantage of the power of the court which
often precludes prior encumbrancers from exercising their
respective rights of power of sale, obtaining possession or taking
any other action with respect to the mortgaged property without the
leave of the court. The receiver appointed by the court is not the
agent of the lender or the borrower but, rather, an officer of the
court that acts in a fiduciary capacity with respect to all
Conversely, the appointment of a receiver by the court entails
many disadvantages, including the following:
delays caused by legal proceedings, such as obtaining hearing
dates and serving parties, in contrast to a privately appointed
receiver which can move expeditiously in realizing on the
substantial costs; and
loss by the lender of control of the realization process and
the ability to direct the receiver to act as the lender sees
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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