Mortgage Enforcement Series Bulletin III - Foreclosure v. Power Of Sale - Market Commentaries

A. INTRODUCTION

Last month, our second bulletin dealt with the types of remedies that are available to a lender in Ontario when there has been a default under the mortgage that has not been satisfactorily resolved following notice by the lender. Some of these remedies can be used in conjunction with others, but this bulletin of the mortgage enforcement series takes a closer look at the advantages and disadvantages of the two mutually exclusive remedies - foreclosure and power of sale. Foreclosure and power of sale are two very different remedies that have some important legal and practical differences between them. (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. PROS AND CONS OF FORECLOSURE AND POWER OF SALE

ADVANTAGES

DISADVANTAGES

Power of Sale

Quick and relatively inexpensive

Convenience – can be done from a solicitor's office without court supervision
Service can be effected by registered mail
The redemption period is fixed with no provision for extension by the mortgagor
A sale made in good faith is not likely to be reopened or set aside
The right to pursue a deficiency after the sale is preserved

A mortgagee can abandon the power of sale and commence an action for foreclosure without consent

The mortgagee must bear the responsibility of the proceedings
The mortgagee has the onus to account for the propriety of the sale and the surplus and could be exposed to attack on the proceedings after the event
Risk that no satisfactory sale can be made. Need a suitable market for sale.
The mortgagee has no power to refinance or make capital improvements to increase the marketability of the mortgaged premises
There are limitations imposed on the mortgagee during the redemption period

Foreclosure

The mortgagee is normally shielded from any action by the mortgagor for impropriety in the sale of the property

The court can provide one judicial forum to settle complex issues such as priorities, accounts, just allowances, costs and prior encumbrances in one proceeding
The mortgagee can make capital improvements or refinance without the need to justify to the mortgagor
The mortgagee will secure any increased value or enjoyment of the property and does not need to account to the mortgagor for any profit on resale
There are no limitations on the mortgagee from taking any other action during the 60 day redemption period if same is requested by the mortgagor

Personal service is required
Determinations must be made on whether the property is a matrimonial home
Can be a time consuming process (mortgagor can request a 60 day redemption period from the taking of accounts)
Inconvenience of a court procedure
Provides the mortgagor with an ability to challenge and protract the action
Upon the sale of the property, the debt is extinguished and any deficiency cannot be pursued as against the mortgagor or guarantor either on the covenant or collateral security
Land transfer tax is payable on the registration of the final order of foreclosure
The mortgagee is subject to the intervention of the court on equitable grounds

BLG's 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
Hotels
Office buildings
Business parks
Apartment buildings
Condominium projects
Mixed-use developments
Residential subdivisions
Shopping centres

Public/Private Arrangements

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.

Hotels

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.

Environment

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.

Municipal

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.

Commercial Leasing

Negotiation and preparation of all leasing documentation for retail centres, business parks, office buildings and warehouses.

Condominiums

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.

Syndications

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.

Limited Partnerships

Negotiation and preparation of all required documentation and advising with respect to the entering into and the structuring of limited partnerships.

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The Borden Ladner Gervais LLP Commercial Real Estate Law Alert is necessarily of a general nature and cannot be regarded as legal advice. The firm would be pleased to provide additional details and to discuss the possible effects of these matters in specific situations. Lawyers " Patent & Trademark

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Mortgage Enforcement Series Bulletin III - Foreclosure v. Power Of Sale

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Real Estate and Construction

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Canada