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May 09, 2020

THE NEW REALITY: PRIVATE MORTGAGE LENDERS’ RIGHTS AND REMEDIES - Part X of a Series – Wherefore Foreclosure?

Mortgages were significantly different animals in England in the 1600s and 1700s. Then, unlike now, a mortgage was created by the homeowner actually giving to the mortgagee the legal title to the mortgaged property. This was accomplished by the mortgagor signing the deed to the mortgaged property and delivering the deed to the mortgagee as security for the payment of the mortgage debt. If the homeowner paid the debt in full - strictly in accordance with the mortgage contract – then the deed was returned to the owner. This effectively discharged the mortgage.

But, if the homeowner was late in repaying the mortgage debt on maturity, or if another default occurred, the mortgagee only had to go to the local Registry Office (there was no land titles system back them) and register the deed. The mortgagee instantaneously became the new owner of the home. This original mortgage remedy, which was strictly a legal remedy (meaning it could be enforced in a Court of Law) is today’s remedy of foreclosure. The foreclosure remedy has now been codified in the Ontario Rules of Civil Procedure, although other rules relating to foreclosure may be found in various land registry statutes and in the Mortgages Act as well.

To fully understand foreclosure, it is important to know that back in the 1600s until the late 1800s, England had many separate and distinct courts which included Courts of Law and Courts of Equity. These Courts were unique institutions. Now, in Ontario, these two courts have been merged into Ontario’s Superior Court of Justice.

The Courts of Law in the 1600s and 1700s in England were very strict courts, looking at the wording of a contract or statute and interpreting that wording very strictly. Justice and fairness were not part of the process in the Law Courts. This led to harsh results. For instance, if a homeowner was only one day late in the payment owing to the mortgagee, the Court of Law would side with the mortgagee and enforce the mortgagee’s right to register the deed and take title to the mortgaged home. Very harsh, indeed.

But the Courts of Equity at that time were prepared to get involved, in order to relieve the homeowner of the harshness and inflexibility of the Law Courts. These Courts of Equity would allow a mortgagor in default to redeem the mortgage – which allowed the mortgagor to repay the mortgage debt and force the mortgagee to return to the homeowner the deed to the mortgaged property. This right of a mortgagor to take back the deed to the mortgaged property (even after default) and discharge the mortgage became known as a mortgagor’s right of redemption and the asset being returned to the mortgagor was called the mortgagor’s equity of redemption, because it would be enforced by a Court of Equity.

Eventually, over time, the delivery of the actual deed to the home was dropped and the creation of a mortgage document was used in its stead. The owner granted the mortgage document to the mortgagee and the owner retained her or his equity of redemption; the right to redeem the mortgage even after default.

And the right of redemption exists to this day. At any time during the foreclosure action, the mortgagor is allowed to repay the mortgage debt in full and stop the foreclosure. Or even if the foreclosure is already complete, so long as the mortgagee continues to own the mortgaged property, the mortgagor’s right of redemption still forces the mortgagee to return title to the foreclosed property to the homeowner so long as the mortgage debt is fully paid. The same is true with powers of sale. At any time in the power of sale process, the mortgagor can exercise her or his right of redemption and repay the mortgage debt and discharge the mortgage.

This is probably more history than anyone imagined they would need to read - in order to fully understand mortgage remedies. My apologies. Next post will look at the start of the power of sale process, being the notice of sale.

As I’ve said before, this blog is intended for information purposes only. It is not legal advice and cannot be relied on as such. Nor is it a substitute for hiring your own legal counsel, who will be an essential member of your mortgage default and mortgage remedy team. And lastly, this blog is just my opinion. I reserve the right to change my mind. And I reserve the right to be wrong.

Be well and stay healthy.

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