MORTGAGE ENFORCEMENT SERIES BULLETIN III FORECLOSURE V. POWER OF SALE

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1 AUGUST 2008 MORTGAGE ENFORCEMENT SERIES BULLETIN III FORECLOSURE V. POWER OF SALE A. INTRODUCTION COMMERCIAL REAL ESTATE LAW ALERT 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 The mortgagee must bear Convenience can be done from a solicitor s office without court supervision the responsibility of the proceedings The mortgagee has the onus to Service can be effected by account for the propriety of the 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 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 after the sale is preserved refinance or make capital A mortgagee can abandon the power of sale and commence an action for foreclosure without consent improvements to increase the marketability of the mortgaged premises There are limitations imposed on the mortgagee during the redemption period

2 Foreclosure ADVANTAGES 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 DISADVANTAGES 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 2

3 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. 3

4 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 4

5 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. OUR TEAM 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. 5

6 If you have any questions about this alert, please contact us. Our National Commercial Real Estate Law group is chaired by: David P.L. Mydske Vancouver Borden Ladner Gervais LLP Lawyers Patent & Trademark Agents C a l g a r y 1000 Canterra Tower 400 Third Avenue S.W. Calgary, Alberta, Canada T2P 4H2 tel: fax: Our Regional Commercial Real Estate group coordinators are: Lawrence M. Kwinter Calgary lkwinter@blgcanada.com Sylvie Bouvette Montréal sbouvette@blgcanada.com Rocco D Angelo Ottawa rdangelo@blgcanada.com Steven N. Iczkovitz Toronto siczkovitz@blgcanada.com Yvonne J. Hamlin Toronto yhamlin@blgcanada.com David C.S. Longcroft Vancouver dlongcroft@blgcanada.com David Shortt Waterloo x.313 dshortt@blgcanada.com Author: Sybil Johnson-Abbott, BLG Ottawa Visit our website at where you can view the Commercial Real Estate Law Alert and other Borden Ladner Gervais LLP publications. This newsletter has been sent to you courtesy of Borden Ladner Gervais LLP. We respect your privacy, and wish to point out that our privacy policy relative to newsletters may be found at M o n t r é a l 1000 de La Gauchetière Street West Suite 900, Montréal, Québec, Canada H3B 5H4 tel: fax: O t t a w a World Exchange Plaza 100 Queen St., Suite 1100 Ottawa, Ontario, Canada K1P 1J9 tel: legal fax: IP fax: To r o n t o Scotia Plaza, 40 King Street West Toronto, Ontario, Canada M5H 3Y4 tel: fax: V a n c o u v e r 1200 Waterfront Centre 200 Burrard Street, P.O. Box Vancouver, British Columbia, Canada V7X 1T2 tel: fax: W a t e r l o o R e g i o n Waterloo City Centre 100 Regina Street South, Suite 220 Waterloo Ontario N2J 4P9 If you have received this newsletter in error, or if you do not wish to receive further newsletters, you may ask to have your contact information removed from our mailing listing by phoning BLG-LAW1 or by ing subscriptions@blgcanada.com Borden Ladner Gervais LLP tel: fax: IP fax: Borden Ladner Gervais LLP is an Ontario Limited Liability Partnership Printed in Canada