Statement of Claim:

A written or printed statement by the plaintiff in an action in the "...High Court", showing the facts on which "he" relies to support his claim against the defendant, and the relief which he claims. It is delivered to the defendant or his solicitor. The delivery of the statement of claim is usually the next step after appearance, and is the commencement of the pleadings.*

Default is a failure to fulfill obligations set out in the mortgage agreement. The vast majority of mortgagors remain in possession of their properties and fulfill covenants without serious problems. Fortunately, legal actions by mortgagees are relativley few.

The most common default is failure to make payments. However, other possibilities exist. A mortgagor can default if any covenenat is not satisfied such as the obligation to pay taxes, the requirement to insure, or the stipulation to pay condo common expenses.

The Quit claim deed can quickly resolve mortgage default issues. This approach may be appropriate if no practical solution exists for the mortgagor to keep the property and the mortgagee agrees to provide him or her with a general release. The mortgagee then takes title to the property and the matter is at an end.

When in default, the mortgagee will often rely on an acceleration clause in which the full mortgage amount becomes due and payable upon default. Otherwise, in an action on the covenant, the mortgagee can only sue for interest arrears, as the implied covenents are limited to that specific action.

Practitioners should note that the Mortgages Act provides that if a mortgage has not matured and the default is resolved, including all costs paid to the mortgagee, the mortgagor is relieved from the default and does not have to pay the balance as stated in the acceleration clause.

Notice of Sale:

A further step in the legal procedure following the initial Statement of Claim. A "notice" in writing, entitled in a clause, stating that, on a certain day designated, a "sale" will be made by the court for the purpose or object stated.*

Possession:

The mortgagor, until default, has quiet possession of the property unless provided otherwise in the mortgage or associated standard charge terms. The mortgagee has rights to take action for possession immediately upon default. No time limits are presently included in the Mortgages Act or in the vast majority of mortgages.

Possession can be effected peaceably, or by taking legal action for possession (sue for possession) and obtaining a writ of possession, which is enforced by the Sheriff. Such action is commonly combined with a further action, e.g., judgement for judicial sale or foreclosure.

The Mortgages Act (Sec. 22(1)) provides, however, that the mortgagor is relieved from the consequence of such default, if he or she brings the mortgage back into good standing. In this instance, the mortgagee may have to, among other things, relinquish possession until the mortgage is restored to good standing.

A "mortgagee in possession" defines when he or she assumes control of the mortgaged property. The mortgagee is expected to mainain the property in a good state of repair. With a business venture, the operation must be managed prudently so that it can be sold as a business.

Judicial Sale and Foreclosure Actions:

Mortgage actions taken by mortgagees typically involve suing for payment and possession, along with further action to foreclose or sell the property. A judicial sale requires the Court sale of the property with proceeds applied to the mortgage debt. The mortgagee must make application to the Court to sell the property. If a deficiency arises, the mortgagee can obtain judgment under the personal covenant to pursue the mortgagor. If an excess results, the amount is returned to the mortgagor following disbursements.

Judicial sale is not a popular action in Ontario as lenders prefer power of sale given speed and lower costs.

A foreclosure action can be commenced immediately on payment default and represents an action to remove the mortgagor's and subsequent encumbrancers' equity of redemption. Upon final order of foreclosure, equitable rights of all subsequent encumbrancers are extinguished leaving the mortgagee taking the action with title to the property. As with the judicial sale, the action is governed by the Rules of Civil Procedure.

The foreclosure process is initiated with a statement of claim. The mortgagor is entitled to file a request to redeem, thereby allowing 60 days to redeem the property. The mortgagor also has the right to request a conversion from foreclosure to a judicial sale action, referred to as a request for sale. However, a provision exists in the Rules of Civil Procedure to convert the judicial sale procedure back to foreclosure if insufficient funds are available to pay the mortgagee.

Assuming that neither a request to redeem or a request for sale is made, a final order of foreclosure is issued. A judgment of final foreclosure is registered against the property title in the land registry office. This action effectively discharges any interests of subsequent encumbrancers in the land.

Foreclosure procedures are very complex.

Power of Sale:

A clause sometimes inserted in mortgages and deeds of trust, giving the mortgagee (or trustee) the right and power, on default in the payment of the debt secured, to advertise and sell the mortgaged property at public auction (but without resorting to a court for authority), satisfy the creditor out of the net proceeds, convey by deed to the purchaser return the surplus, if any, to the mortgagor, and thereby divest the latter's estate entirety and without any subsequent right of redemption.

This legal right to force the sale of the mortgaged property upon default without judicial proceedings is by far the most common remedy taken by mortgagees in Ontario. The Power of Sale differs from a judicial sale in that no significant court involvement is required and sending a notice initiates the process, rather than the more complex requirements found in judicial sales and foreclosures.

A power of sale can be either contractual or statutory. A notice of sale must be provided to the mortgagor, together with subsequent encumbrances and others having an interest in the property. If the property is a matrimonial home, others having an interest would include the spouse of the mortgagor.

A prescribed notice under the Mortgages Act can be sent 15 days following default. The notice can be delivered by registered mail or by personal service.

If a contractual power of sale is undertaken, the mortgagor has 35 days to remedy this situation. If the power of sale is statutory, the time period is 45 days. No action can be taken by the mortgagee within the 35 or 45 day redemption periods.

If the time limit has expired and the default is not corrected, the mortgagor can proceed to sell the property.

In the Sale of Property, power of sale properties in Ontario are typically listed by real estate brokers. Regardless, the mortgagee must ensure that the property is fairly promoted in the marketplace.

The Ontario Real Estate Association has developed two forms to assist real estate practitioners regarding powers of sale:

Certificate of Power of Sale: Confirmation for the listing broker that the mortgagee has authority to market the property under power of sale.
Seller Selling Under Power of Sale: A schedule to be attached to the Agreement of Purchase and Sale (Form 100) attesting to the seller's authority as mortgagee to sell the property under power of sale.

The Mortgages Act (Sec. 27) sets out an exact procedure concerning funds disbursement arising from a power of sale:

Liens:

A charge or security or encumbrance upon property.* It is specific to date and time of registration against the property to its effect as an encumbrance.

Executions:

An "execution" is a remedy afforded by law for the enforcement of a judgment of the court. An "execution lien" may be created by service of execution, levy upon real estate, and filing of a certificate of levy in the proper office where the real estate is located.

Execution Sale is a sale by a sheriff or other officer under the authority of a writ of execution which he has levied on property of the debtor.

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* Black's Law Dictionary; Henry Campbell Black, M. A.

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