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Rights and Remedies of the Mortgagee.

In a normal case where there is no default, the mortgagor pays interest upon the loan at quarterly or half-yearly
intervals, until either he is requested by the mortgagee to redeem, or he gives notice of his intention to redeem.
Thereupon, upon payment of principal, interest, and costs, the mortgagee will reconvey the property to the
mortgagor, assuming that the latter has not in the meantime mortgaged the equity of redemption, i.e., given a
second mortgage over the property.
Suppose, however, that the mortgagor falls into arrear with his payments of interest, or refuses, or is unable to repay
what he owes, when called upon by the mortgagee to redeem, the latter may proceed to enforce his security, that is,
to repay himself out of it, and we have next to consider how this may be done. Assuming that the mortgage is an
ordinary legal mortgage, made by deed, the following remedies are open to the mortgagee:
a. He may sue the mortgagor upon the covenant for payment contained in the mortgage.
b. He may bring an action against the mortgagor for foreclosure.
c. He may exercise his power of sale.
d. He may appoint a receiver of the mortgaged property.
e. He may go into possession of the property himself.
Taking these remedies, and considering them in their order.
(a) Action upon the Covenant. - This remedy differs from all the others in being a personal remedy, and not an
enforcing of the security at all. It is not advisable to resort to it, unless there is no doubt that the mortgagor is able to
pay, and that his refusal arises rather from obstinacy than impecuniosity. But the refusal of a debtor to pay generally
arises from inability to do so, and in such a case it would be no good to sue, merely to get an unsatisfied judgment. In
any case it is better not to sue the mortgagor on his covenant, whether or not he has money, unless or until the
property has seriously depreciated in value, so as to be no longer a sufficient security for the debt.
An equitable mortgage only gives rise to a simple contract debt, for which the creditor has but six years in which to
sue, while a covenant to pay in a mortgage deed creates a " specialty " debt, which is not barred until twelve years
from the last acknowledgment or payment of interest.
a. Foreclosure.-If the mortgagor is in default, after the mortgage money has fallen due, the mortgagee may
sue him for foreclosure. If the action succeeds, the mortgagor will be allowed a certain time, usually six
months, in which to redeem, failing which he and all other persons interested in the equity of redemption are
foreclosed and deprived of it, so that the mortgagee becomes absolute owner of the property to the extent of
the mortgagor's interest in it, subject, however, to the possibility of the foreclosure being " re-opened" under
certain special circumstances. It is better as a rule to exercise the power of sale than to bring an action for
foreclosure, because the Court may order the property to be sold, unless it is not likely to realise its full value.
The Court will generally order a sale in an action either for foreclosure or redemption:
1. where the mortgagor is bankrupt and the property much encumbered;
2. where the interest is heavily in arrear ;
3. where the property is unproductive.
A sale will not be ordered where the property seems likely to improve in value ; and this is the case where a
foreclosure action may be the best remedy. A property which is an insufficient security for the debt may often be
improved into a good security with careful management, in the hands of the mortgagee, who, however, cannot
recover more than his principal, interest, and costs. If any balance is leftover after a sale, he holds it as a trustee for
the mortgagor.
Any mortgagee has a right to redeem every mortgagee whose charge is prior to his own, and to foreclose the
mortgagor and every mortgagee whose charge is later than his own. In a redemption action (which is the converse of
a foreclosure action) the plaintiff will be given a certain time in which to exercise his right of redemption, and if he
does not do so within the time given, the action will be dismissed, and such dismissal will operate as a foreclosure.
An equitable mortgagee has the same right to foreclosure as a legal mortgagee has.
(c) Power of Sale.-Previous to the year 1882 it was the invariable practice to insert an express power of sale in the
mortgage deed, but this is now omitted, as under the Conveyancing Act, 1881, there is implied in every mortgage
made since 1881 a power for the mortgagee to sell the property and convey it to a purchaser. The statutory
provisions relating to the power of sale may be summarised as follows :-
The power can only be exercised after the mortgage money has become due, and one of the three following
alternatives has happened :
i. Notice has been served on the mortgagor requiring payment, and default has been made in payment for three
months after such notice.
ii. Some interest under the mortgage is in arrear, and remains unpaid for two months after becoming due.
iii. Some covenant or provision expressed or implied in the mortgage. other than the covenant for payment of
principal and interest, has been broken by the mortgagor.
A sale under a power of sale will only be set aside by the Court in one of the two following cases :
1. If the property has been sold at a gross undervalue.
2. If the mortgagee has in reality sold to himself, his agent, or nominee, or to a firm in which he is a partner.
The proceeds of any sale made under his power by the mortgagee must be applied, first in payment of costs and
expenses, and then in discharging the mortgage money and any interest due and unpaid thereon. The balance must
be paid to the mortgagor or other person entitled to the equity of redemption, a second mortgagee having a prior
claim to any one else. The mortgagor can only take what is left after all mortgagees have in turn been satisfied. The
mortgagee selling is to the extent of such balance a trustee for the persons entitled to it.
The exercise of the power of sale is a mortgagee's best and most usual remedy, where the security is sufficient, and it
is less expensive than foreclosure. The mortgagee will not be liable for any involuntary loss incurred in exercising the
power of sale.
The Conveyancing Act does not apply to mortgages made before 1882, which as a rule contain an express power of
sale. In its absence, there is a restricted power of sale under Lord Cranworth's Act (1860).
An equitable mortgagee by deposit of deeds cannot exercise the power of sale, at any rate until he has enforced his
agreement for a legal mortgage, because, not having the legal estate, he cannot convey the property to a purchaser.
The statutory power of sale does not affect the mortgagee's right of foreclosure in any way.
(d) Appointment of a Receiver.-This is a very useful remedy of the mortgagee, the object of which is to enable him
to secure the rents of the property, without undertaking the onerous liabilities of going into possession. There are
many cases in which the property, though a sufficient security for the debt, would not fetch anything like its real value
on a forced sale, while it may be bringing in a good income in the shape of rent, and under these circumstances it will
be best to appoint a receiver. If, however, the property is not producing anything, this remedy will be useless.
Leaving aside the former practice as to receivers, in the case of any mortgage dated since 1882, and made by
deed, the mortgagee may, if circumstances have arisen giving him a right to exercise his power of sale
(see ante), appoint a receiver of the income of the mortgaged property. The appointment is made in writing, under
the hand of the mortgagee. The receiver, when appointed, acts as the agent of the mortgagor, who is solely
responsible for his acts. He has power to demand and recover all the income of the property by action, or otherwise,
and to give receipts for it. He is entitled to be paid a remuneration - usually 5 per cent. of his gross receipts:
Money which comes into the receiver's hands as such, must be applied as follows:
1. In paying rents, rates, and taxes.
2. In paying the interest on all principal sums secured on the property prior to the mortgage under which the
receiver is appointed, according to the priority of each sum.
3. In payment of the receiver's commission, insurance premiums, and cost of repairs directed by the mortgagee.
4. In payment of interest on the mortgage.
Any surplus will belong to the mortgagor.
It will be seen that an equitable mortgagee has no power, apart from special agreement, to appoint a receiver
himself, for the above power only applies to mortgages made by deed. But the Court has a general jurisdiction to
appoint a receiver in an action, whenever it is just and convenient, so that an equitable mortgagee can commence an
action asking for sale or foreclosure, or and other remedy, and move therein for the appointment of a receiver at
once. If the: mortgage includes a business carried on on the premises, the appointment of a receiver and manager,
and not merely a receiver, should be asked for, and will in a proper case be made. A receiver appointed by the Court
must give security and will be entitled to remuneration. He is an " officer of the Court," and therefore he cannot be
turned out except by further order of the Court, whereas a receiver appointed by the parties can be turned out by a
prior legal mortgagee appointing another receiver on his own behalf, or himself going into possession. But the Court
will not appoint a receiver if a prior legal mortgagee has done so, or is in possession.
(e) Mortgagee in Possession.-This is a remedy now seldom resorted to, partly because nearly all its advantages can
equally well be obtained by the appointment of a receiver, but chiefly for the reason that a mortgagee by taking
possession of the property lets himself in for various heavy responsibilities. For instance, he will be liable to account
not only for the income which he has actually received, but also for what, but for his wilful default, he would have
received. He cannot charge for collecting the rents, but must do so at his own expense. If he personally resides upon
the property, he must pay an occupation rent for it. Again, though it is easy to go into possession, it is not so easy to
get out again, for the mortgagee cannot get rid of his responsibilities so incurred by the appointment of a receiver.
Altogether, it is a remedy which may very well turn out to be worse than the disease, and it is one the resort to which
the law does not encourage.
On the other hand, there are exceptional cases where it may be the only way of realising anything out of the property.
For example, a mortgagee has power, when in possession, and only then, to cut and sell timber or contract for doing
so. He may also open mines, and lease the property without the mortgagor's consent. He may charge for necessary
repairs while in possession, but he is not allowed to "improve the mortgagor out of his property " ; in other words, to
make improvements, the cost of which would, if added to the mortgage-debt, make it impossible, or unreasonably
difficult, for the mortgagor to redeem. A mortgagee would only go into possession as an extreme step, as where the
security is grossly insufficient, or the mortgagee has absconded, and there is a chance of becoming absolute owner of
the property under the Statutes of Limitation.
Other Remedies and Powers of the Mortgagee. The mortgagee has also power, under the Conveyancing Act,
1881, to insure the mortgaged property. The premiums paid by him for such insurance will be a charge on the
property, to be added to the mortgage-debt, with interest at the same rate as in the mortgage.














The Foreclosure Process

The following is a summary of the main steps involved in a foreclosure action in order to
assist in your understanding of the steps which must be taken when "foreclosing" a
mortgage.
I. The First Steps
When the owner of property charges or mortgages his or her property (as "Mortgagor") to
the party lending the money (that party being the "Mortgagee"), the law assumes that the
Mortgagor has conveyed his or her property to the Mortgagee but has retained the right to
pay the Mortgagee in full and to then require the Mortgagee to reconvey or release all claim
upon the property. This right is referred to as an "equity of redemption".
If the Mortgagor falls behind in his or her monthly payments or makes default under one of
the other provisions in the mortgage (such as the requirement to insure, pay taxes, etc.), the
mortgage usually provides that the Mortgagee can elect to "accelerate" the mortgage so that
all monies due and owing under the mortgage are payable. Once the Mortgagee has elected
to use the "acceleration" clause in the mortgage, the Mortgagee is not obligated to accept
only the monthly payments which are in default (this amount commonly being referred to as
the "arrears"). Therefore, subject to the right of the Supreme Court to order otherwise, after
acceleration, the Mortgagee can insist that the total of the amount owing under the mortgage
be paid and can not be required to accept only the arrears.
After a Mortgagor has fallen into arrears on his mortgage, a demand must be made on the
Mortgagor before any Court proceedings are commenced. If no response is received from the
Mortgagor, it is usual for an action to be commenced in the Supreme Court of British
Columbia by way of a "Petition" by the Mortgagee who then becomes the "Petitioner" in the
action. The "Respondents" in the action will be the owners of the property plus any
individuals or companies who have an "interest" in the property (such as a mortgage, lien, or
judgment) which was registered in the Land Title Office after the Mortgagee registered its
mortgage. Accordingly, if a first mortgage is registered against the owners of the property in
June of 1995, a second mortgage registered in September, 1995, a Judgment is registered
against the owners of the property in October, 1995, and a Builders' Lien is registered
against the property in November of 1995, the Respondents to an action will be the owners,
the holder of the second mortgage, the Judgment Creditor who holds the Judgment as
against the owners, and the person who has filed a Builders' Lien.
In a foreclosure action, the Court proceedings are commenced by a "Petition" which outlines
in condensed form what the Petitioner claims against the Respondents as well as the facts
which will be relied upon by the Petitioner in making its claim. The Petition is accompanied by
an Affidavit sworn by the Mortgagee or an employee of the Mortgagee who can swear as to
the truth of what is outlined in the Petition and by an Affidavit sworn by the solicitor for the
Petitioner attaching a copy of the Certificate of Title for the property being foreclosed. Service
of the Petition and Affidavits is usually accomplished by personally delivering copies of the
documents to individuals, Banks and extra-provincially registered Companies (using a
process server) and by mailing copies of the documents by registered mail to the registered
offices of any British Columbia companies which are Respondents to the action.
II. Contested Foreclosures
If the Respondents (or any of them) have a "defence" to the action which has been
commenced they have twenty-two (22) days from the date of service of the Petition and
Affidavits on them to file an Affidavit setting out the nature of their defence and why they
feel the claim of the Petitioner is either invalid or inaccurate (in whole or in part).
If a foreclosure action is opposed, it is usually necessary that a trial take place to hear the
matters in dispute between the parties. The number of actions where it is necessary to have
a trial is very low (less than 1 in 10,000). If an action is referred to trial by the Court, the
trial takes place about 15 to 18 months after the date of commencement of the foreclosure
proceedings.
III. The Order Nisi
If the action does not "go to trial", the Petitioner is in a position to obtain an "Order Nisi" of
foreclosure.
The Order Nisi is the initial Order obtained in a foreclosure action. The term "Nisi" has been
defined as:
"A limiting term added to such terms as Decree, Order, or Rule to indicate that these are not
absolute or final, but are to be valid or take effect unless some cause is shown, or reason
arises, to prevent this."
At the Order Nisi stage of a foreclosure action, the Court will establish the amount which is
owning to the Petitioner and will establish a period during which time the Respondents can
pay this amount. This period of time is known as the "redemption period" and the "usual"
period is six months. If it can be shown that the property, if sold, would not produce enough
to pay the amount owing under the mortgage which is being foreclosed, the Court will
sometimes decrease the "usual" six-month redemption period. In rare circumstances, the
Court might order a redemption period of more than six months.
At the time of the granting of the Order Nisi, the Court will establish what is due and owing to
the Petitioner at the date of the Order Nisi and the per diem interest which accrues after that
date. The Respondents will then have the six months (or any other period set) to pay what is
due and owing. In order to "redeem" the property, they will have to pay the total of:
the balance owing at the date of the Order Nisi;
the interest accruing to the date of payment;
the balance owing to the Petitioner for its Court awarded costs.
The Court will also usually order that Judgment be given against the Respondent Mortgagors
or any Guarantors in an amount equal to the amount which is due under the Mortgage
(including costs) at the date of the Order Nisi.
IV. Enforcement Options
Once the Petitioner has entered an Order Nisi with the Court, it has two courses of action
available to it which it can exercise concurrently:
enforce (or execute on) the Judgment obtained by selling other assets of the Respondent
Mortgagors;
proceed with the foreclosure proceedings.
If the Petitioner executes on the Judgment, the Petitioner proceeds as if a Judgment had
been obtained in a regular Court Proceeding (so that assets of the Mortgagors can be seized
and sold to satisfy the Judgment, other land of the Mortgagors can be sold to satisfy the
Judgment, etc.). The proceeds on any assets sold are applied against the balance owing
under the Judgment and against the redemption amount. The interest rates on Judgments is
about 7.5% and, unless the interest rate under the mortgage is also 7.5%, these amounts
will be different so that it is possible for the Judgment to be satisfied even though the
mortgage has not been redeemed. Until the redemption amount is satisfied, the Mortgagee
will not be required to discharge its mortgage from the property.
At any time during the foreclosure proceedings, the Court has the power to order that the
Petitioner accept the amount of the arrears owing (so that the mortgage is put back into
good standing). In deciding whether it will make such an order, the Court takes into account
the number of payments missed, the possibility of the arrears being paid, and whether the
mortgage has been in arrears before. This Order cannot be made if the mortgage term has
matured.
V. Order Absolute
The next step in the foreclosure proceedings is the application for an Order Absolute. An
application for Order Absolute can be taken only after the redemption period has expired.
After receiving a Certificate from the Court Registry that no monies have been paid into
Court, the Petitioner requests that the Order Nisi be made "absolute". In some cases,
proceeds have been received from execution proceedings or the sale of one property where
the mortgage covers more than one property. These payments must be accounted for in the
materials before the Court when the application for Order Absolute is made. The granting of
the Order Absolute has the effect of "foreclosing" (shutting out/terminating) all the interests
of the Respondents in the property. When registered in the Land Title Office, the Order
Absolute has the effect of conveying the property into the name of the Petitioner free and
clear of the interests of the Respondents. This registration is subject to one exception - the
Respondent owners retain the right to go before the Court and obtain an Order that the
property be conveyed back to them upon payment of the full balance then due and owing.
This type of application is very rare and, in almost all cases, the registration of the Order
Absolute in the Land Title Office by the Petitioner will mean that the Petitioner will retain the
property as its own. Once Order Absolute is granted, the Petitioner loses its right to proceed
against the mortgagors under the Judgment obtained even though, in due course, the
property might be sold for a loss. However, if the property can later be sold for more than
what was owing, the Petitioner does not have to share this surplus with any of the
Respondents.
VI. Appointment of a Receiver
At any time after the action is commenced, a person (called the "Receiver") may be
appointed by the Court for the purpose of taking possession of the property and receiving
any rents and profits from that property. The Receiver takes possession of the property and
makes arrangements with the tenants to pay rent directly to him or her. The Court usually
orders that this rent can be applied on taxes, repairs, etc. The appointment of a Receiver is
often made when it appears that the property will be allowed to become "run down" during
the period when the foreclosure proceedings are taking place. The Court will never appoint a
Receiver if only the owners are occupying the property.
VII. Obtaining an "Order for Conduct of Sale"
Any of the Respondents can apply to the Court at any time for an "Order for Conduct of
Sale". This Order provides that the property be sold and that the party obtaining the Order
have the ability to list the property with a real estate agent. If such an Order is granted, the
party obtaining the Order can list the property with a real estate agent as though they were
the owner of the property (subject to the proviso that the sale will usually have to be
approved by the Court). This Order nullifies any previous listing agreement entered into by
the Respondent owners. If, during the "redemption period", a purchaser cannot be found or if
a purchaser is found but is not (in the opinion of the Court) offering enough to justify a sale,
then the Petitioner is in a position (but only after the expiry of the "redemption period") to
request an Order for Conduct of Sale instead of applying for Order Absolute of foreclosure. If
a satisfactory offer is made to the party having conduct and a sale is approved by the Court,
the proceeds of the sale will be used to satisfy any taxes owing on the property, any real
estate commission which is due, the amount due and owing to the Petitioner under its
mortgage, the amounts due and owing to the Respondents under the charges which they
hold and the balance, if any, to the Respondent owners. It is only rarely that the Petitioner is
granted an Order for Conduct of Sale during the redemption period.
VIII. Lawyer's Fees in Foreclosure Proceedings
The Petitioner will be awarded "Party and Party" costs in an amount to be assessed pursuant
to Appendix "B" of the Supreme Court Rules. An "assessment" of costs involves the Registrar
of the Supreme Court making a monetary assessment of the work done by the lawyer to that
point in time. The assessment is made having reference to the Schedule of the Party and
Party costs in the Supreme Court Rules. The amount of the "assessed" costs and the amount
of the disbursements of the lawyer are added to the amount of the Judgment obtained
against the Respondent owners and to the redemption amount. If the property is sold during
the period of redemption, these costs and disbursements will be paid out of the proceeds of
such a sale. IF the Respondent owners pay the amount which is owing under the mortgage
during the period of redemption, it is also necessary for them to pay these costs and
disbursements. If the property is not sold, if the Respondent owners do not pay the amount
which is owing and if the Petitioner is successful in obtaining an Order Absolute, the lawyer's
account is paid directly to the lawyer by the Petitioner. The Party and Party costs which are
recoverable against the Respondents usually represent about 1/4 to 1/3 of the actual fees
the lawyer will charge to perform the services required in the foreclosure proceedings.
IX. Summary
The four main steps in a foreclosure proceeding (the demand, the issuance of a petition, the
application for Order Nisi, and the application for the Order Absolute) usually involve a period
of 8 - 9 months and provide a procedure whereby the Petitioner/Mortgagee obtains what is
due and owing to him by receiving the "arrears" owing under the Mortgage, the full amount
owing under the Mortgage, or the property itself.