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Copyright 2008, Blake, Cassels & Graydon LLP
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 strategy:
- 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 personal property?
- 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 receivership clause?
- 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 above.
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.
