Hypothecary (Mortgage) Remedies and Forced Surrender of Your Property
Wednesday March 29 2023
Hypothecary (Mortgage) Remedies and Forced Surrender of Your Property
Many people who purchase houses or condominium units do not have enough cash on hand to complete the purchase, or they simply prefer not to use their savings to do so. Many purchasers obtain loans from banks or other financial institutions, or even private lenders to close the deal. Whoever the lender is, they will generally require security to guarantee repayment of the debt should the purchaser fail to pay back the loan as scheduled. In Quebec, for example, this means that a notary will[MMG1] be hired to prepare a deed of hypothec (mortgage), to confirm the agreement of the parties on the deed of hypothec and to publish the deed of hypothec on the land registry to make its claim opposable to third parties and to give the lender a guarantee for the repayment of the loan secured against the property being purchased.
Most people are currently aware of how mortgage loans work. Monthly, weekly or bimonthly payments are made over a number of years until the loan is finally paid off and the mortgage can be struck from the registry. Until such time as the loan is paid off, the lender keeps his mortgage security which includes some powerful rights.
However, should you fall behind on your payments, in Quebec, the mortgage lender is not allowed to immediately foreclose on your property and to take it from you. There are certain procedures he must respect.
When you fall behind on your payments, the lender can send you a demand letter, but is not obliged to do so. The first obligatory procedure that the mortgage lender must follow is the sending and registering of the prior notice of the exercise of a hypothecary right. This notice will advise the owner-borrower of their default as well as the total amount still owing on the loan. The default, for example, could be to have missed 5 consecutive monthly [MMG2]instalments on the loan. If the loan itself has become due, the default can be the failure to repay the loan balance in its entirety. The notice must indicate the exact amount of the default in capital and interest. Furthermore, the notice must indicate the total amount of the balance of the loan outstanding.
This notice must first be served by a bailiff to the owner-borrower and any other interested people, and then published in the land registry against the property. This notice is also popularly known as ‘’60-day notice’’ which refers to the fact that no lawsuit can be issued for the first 60 days following the publication of the prior notice in the land registry. For example, if the notice is published on March 1, 2023, the 60th day following the notice would be April 30, 2023. As it happens April 30, 2023, is a Sunday and therefore, according to the law, the 60th day will be reputed to be May 1. Therefore, the earliest that any lawsuit can be initiated would be May 2, 2023.
During this 60-day period, the owner has the right to remedy his default. He does so by paying what is owed in terms of missed payments as well as any further payments that have become due, interest and legal costs. “Legal costs” refer to the fees for service by the bailiff of the notice as well as the fee to publish the notice in the land registry and, furthermore, the fee to cancel the notice from the land registry.
The lender has essentially two choices when he sends the 60-day notice. First, he can decide to proceed by way of sale under judicial authority. (A variant option, less common, is sale by the lender himself.) If the lender decides to proceed by sale, the procedure is that, if the default is not remedied, the lender takes steps to obtain a judgment, following which the property will be sold. The proceeds will then be used to pay, in order of priority, any creditors with claims registered against the property as well as any real estate broker mandated to sell the property, court costs and bailiffs’ fees. If after the sale of the property and distribution of the proceeds any money is remaining, such money will be returned to the borrower. If no money is remaining, the borrower gets nothing and, should the lender have not been paid in full, he retains a claim for the deficiency against his borrower, but it is merely a personal claim and no longer a secured claim.
The borrower also has the opportunity, should he wish, to proceed by way of taking-in-payment. In such a case, he can declare that he intends to become owner of the property. Should he become the owner of the property, that will serve as payment of the loan and the loan itself will be wiped out as of the day of the judgment. This can be particularly interesting where the balance payable is of an amount much smaller than the amount of the value of the property. This right is not absolute, however. Firstly, should at least 50 % of the debt already have been repaid, the lender will require the court’s permission to proceed by way of taking in payment. Secondly, either the borrower or other mortgage creditors can actually force the borrower to change from a taking-in-payment remedy to a sale remedy, so long as they respect certain formalities.
Once the 60 days have expired, to proceed to actually obtain the property, it will be necessary to introduce a lawsuit for forced surrender of the property for the purposes of either sale or taking-in-payment. Such a lawsuit must be served to the borrower. The borrower may hire a lawyer and attempt to defend the lawsuit, should he so wish. If a defence is offered, and if it is not dismissed as being evidently unfounded or otherwise not being an available defence, then eventually a trial can be held, and a judgment will be issued. If the borrower does not contest, the judgment can be obtained by default.
It is important to note that even after the lawsuit is initiated, the borrower may still prevent the property from being taken from him by paying what is owing, including all new instalments that have become due, as well as court costs, which will include further bailiff fees for service of the lawsuit as well as fees paid to the court to open the lawsuit, plus interest, and other costs that may have been incurred by the lender. For example, if the lender was spending money to maintain a property that the borrower had abandoned, then the borrower will also have to pay the costs for the management company looking after the property.
The borrower has deadlines to meet in order to avoid losing the property. In the case of taking in payment, the deadline will be the issuance of the judgment pronouncing the taking in payment. The judgment becomes the lender’s title to the property. After the judgment, unless an appeal or a motion to revoke the judgment is undertaken, it is too late to pay what is owing.
For cases of sale, the last possible moment to pay would be prior to a deed of sale signed by the bailiff or the lender to a purchaser. For example, the judgment of forced surrender for sale by the bailiff is issued on September 1st. The property goes up for sale on September 15th via a real estate broker. An offer for purchase is accepted on October 1st. All the conditions are finalized and a date at the notary is set for November 1st at 12p.m. In theory, at least, the borrower can show up on November 1st at 11:59 a.m. and pay everything owing, in terms of either unpaid instalments or the balance, court costs, other costs and interest, and avoid the sale in favour of the purchaser.
The system in Quebec is designed to give the borrower ample opportunity to pay what is owing in order to avoid losing a property. He or she must still find the money necessary, and the borrower has deadlines that must be respected but so long as the borrower is able to come up with the necessary funds and so long as the property has not either been sold or become the property of the lender, the borrower retains the possibility to keep his property. The fact that the borrower has fallen into default and fallen behind on his payments or failed to repay the loan at the date of reimbursement means that the borrower will incur extra costs for such things as court fees and bailiff fees, and, possibly, additional interest, but so long as the borrower can come up with the money before the deadline, the borrower can keep the property.
It is important, as well, to note that a borrower cannot, despite any agreement to the contrary, be obliged to pay for the lawyer’s fees or other costs not related to the preservation of the property. However, such amounts may possibly be the subject of a separate lawsuit against the borrower, strictly to recover those amounts.
If you have any questions regarding your mortgage or what your lender may or may not do, do not hesitate to contact a lawyer or notary.
Alepin Gauthier Avocats Inc.
This article contains general legal information and should not replace legal advice from the lawyer or notary of your choice who will take account of the details of your specific situation.