December 5th - 2004

Merv's Column: Going once, going twice...…SOLD

The owner of a condo went into arrears on his mortgage when he lost his job and moved back to his parents' home.

The owner of a condo went into arrears on his mortgage when he lost his job and moved back to his parents' home. He rented out the condo but couldn't make the payments. A few months later he got a job and agreed with MCAP, the lender, to catch up on the arrears and did so partially. However he never made another agreed payment. MCAP's lawyers wrote a demand letter and, when he didn't pay, MCAP started Power of Sale proceedings and sued him for the amount owing and possession. The tenants vacated. MCAP listed the property and sold it unconditionally with a provision that, "The vendor has the right in its sole discretion to terminate this agreement by notice in writing delivered to the Purchaser or his solicitor at any time prior to closing if an injunction or other application has been brought by any party restraining the sale."

So the question is: Can the owner now force the lender to accept the
arrears and costs so that the sale is not completed?

Here are some of the judge's comments:

"Except in the most extreme and exceptional of cases (which this is not), a mortgagee acting in good faith and without fraud will not be restrained from the proper exercise of its power of sale except on tender by the mortgagor of the principal monies due, interest and costs. The right of a mortgagor to put a mortgage into good standing ends upon the acceptance of a valid offer to purchase made in good faith and in the absence of fraud.... the clause in the agreement of purchase and sale that permits termination if injunction proceedings are brought is for the benefit and protection of MCAP, and not for the benefit of the vendor. He cannot use that clause to extend the time in which he may tender to put the mortgage in good standing.

The law holds, as a general proposition, that the mortgagee's rights to tender end when a firm and binding agreement is in place. Potential purchasers may invest their time in the process for purchasing the property in the knowledge that if a firm agreement is reached, it will be enforceable, and they will be entitled to close the transaction. If that was not the case, then interest in purchasing properties sold by way of power of sale would be reduced, since there would be a greater risk of investing time and effort in a sale, only to have the mortgagor tender at the last minute. Thus the policy of the law, in terminating the mortgagee's rights to tender at the time an agreement of purchase and sale is reached, actually works to the benefit of both mortgagors and mortgagees."

Girard V. MCAP 2004 ONSC 10955

MERV'S COMMENTS
The judge’s decision makes good legal sense and is a practical application of how the Ontario marketplace deals with these types of transactions.

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