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 relatively few.
The most common default is failure to make payments. However, other possibilities exist. A mortgagor can default if any covenant 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 covenants 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.*
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 maintain 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.
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.
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:
- All expenses incurred regarding the sale or any attempted sale
- Discharge of all interest and costs due under the mortgage
- Discharge of all principal money due under the mortgage
- Payment of amounts due to subsequent encumbrancers in order of priority
- Payment to tenants of rent deposits paid under the Tenant Protection Act when the deposit was not applied in payment of the last rent period.
- Any residue to be paid to the mortgagor
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.
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.
Real Estate Fraud FAQ
What is real estate fraud?
There are many different types of real estate fraud, but the two that consumers should be aware of are Mortgage Fraud and Title Fraud. Mortgage Fraud occurs when an individual intentionally provides inaccurate, fraudulent or incomplete information to a lender in order to secure a mortgage that they might not otherwise be granted. This could include anything from an individual claiming to have a higher income than they actually have to providing falsified proof of identification or a falsified appraisal of the property. Title Fraud occurs when a fraudster assumes the identity of an individual homeowner and then uses that false identity to pose as the homeowner. They could then assume the title on the home, sell the property or obtain a mortgage on that property or other properties in the homeowners name.
How big a problem is mortgage fraud in Canada?
Mortgage fraud is a crime that the banking industry, police, governments and other organizations involved in real estate transactions take very seriously. Although there is no central organization that collects statistics nationally there are some indications that the number of incidents is increasing. While even a single incident is one too many, it is important to put the issue into perspective. There are hundreds of billions of dollars in mortgages held by millions of Canadian homeowners and in the vast majority of cases these mortgages are perfectly normal.
What is my bank doing to protect me from real estate fraud?
The banks work constantly to protect you from fraud. All banks have fraud and security teams working around the clock to ensure that security measures are constantly being enhanced, technology is being upgraded, and that the banking industry assists police in investigations to help catch the criminals and put them behind bars. In addition, the banks and the Canadian Bankers Association are involved in real estate fraud task forces across the country. These task forces bring together lenders, police, government, real estate groups, the legal profession and other groups to look closely at real estate fraud to determine what changes can be made, individually and collectively, to prevent fraud and protect Canadians. This work is ongoing but, to date, significant changes have been made to directly prevent some instances of real estate fraud from occurring.
How do I protect myself from becoming a victim of mortgage fraud?
Protect your personal information from identity thieves:
- Do not give out personal information on the phone, through mail or over the Internet unless you have initiated the contact or know with whom you’re dealing.
- If it sounds too good to be true, it probably is – before you reveal any personal information, find out how it will be used and if it will be shared.
- Pay attention to your billing cycles. Follow up with creditors if your bills don’t arrive on time.
- Guard your mail. Deposit outgoing mail in post office collection boxes or at your local post office. Promptly remove mail from your mailbox after delivery. Ensure mail is forwarded or re-routed if you move or change your mailing address.
- Minimize the identification information and number of cards you carry.
- Keep items with personal information in a safe place. An identity thief will pick through your garbage or recycling bins. Be sure to tear or shred receipts, copies of credit applications, insurance forms, physician statements and credit offers you get in the mail.
- Give your Social Insurance Number (SIN) only when absolutely necessary. Ask to use other types of identification when possible.
- Don’t carry your SIN card; leave it in a secure place.
- Check your credit report regularly to ensure there are no discrepancies Reviewing your credit report can help you find out if someone has opened unauthorized financial accounts in your name. There are three credit reporting agencies in Canada: Equifax Canada, Northern Credit Bureaus Inc. and TransUnion Canada. You can request free copies of your credit report from credit reporting agencies by mail. Online versions of reports are also available for a small fee. You can also conduct a property search at your province land registry office to ensure that the title to your home is in your name.
When the banks become victims of mortgage fraud, where do they turn to recover the funds?
In the event of a mortgage default, the property pledged as security would be sold by the lender, and this alone can sometimes cover any money lost through mortgage fraud. If there is a shortfall after the property is sold, then a lender may turn to mortgage or title insurers to recoup losses. There are also a variety of professional errors and omissions funds set up by groups such as law societies and real estate associations to reimburse victims for losses if their members are involved in the crime. The bank may also sue the criminals themselves to recoup some or all of the losses. Again, keep in mind that, in most cases, there is still a property that can be sold, so the banks may only turn to insurance or funds to cover the difference between the amount of the mortgage and the amount they received for the sale of the property, not the entire amount of the mortgage. If banks are recouping their mortgage fraud losses from mortgage insurance provided by the Canada Mortgage and Housing Corporation (CMHC), a crown corporation, then do taxpayers pay for the losses? The CMHC insurance program is completely self-funded and CMHC competes with other insurers for mortgage insurance business. The Canadian treasury and Canadian taxpayers do not suffer any losses as a result of mortgage fraud or any other mortgage defaults. In fact, in 2003, CMHC announced a 15% reduction in premiums for mortgage loan insurance.
How do the banks assist the police when it comes to investigating cases of mortgage fraud?
It is in all of our best interests to combat mortgage fraud. The banks cooperate fully with police to ensure that homeowners are protected, criminals are brought to justice and that effective measures are put in place to fight and reduce mortgage fraud in Canada. The banks conduct their own internal investigations and will provide their findings to police. They will also help in any way that they can, within the law, with police investigations into mortgage fraud. This could include providing documents and other information that they have obtained or testifying in court. The banks and the CBA also sit on task forces and working groups with police, governments, real estate groups, the legal profession, other financial institutions and other stakeholders that look at mortgage fraud and related issues. To commit mortgage fraud, a number of parties need to be working together and they vary the methods used to commit this crime. By sharing information, we can all constantly be taking steps to change practices and close any gaps that may exist in the system.
Do bank customers ultimately pay for mortgage fraud losses through higher service fees?
No. There is no direct correlation between fraud losses and service fees thats not how banks operate. There are, of course, many costs of doing business for a bank, including losses associated with fraud. Others would be such things as credit loan losses, operating expenses, wages, technology and rent. In the end, if these costs of doing business go up, then revenues and earnings go down. Mortgage fraud losses are an unfortunate cost of doing business and banks are working aggressively to decrease those losses. It is also important to note that, in general, monthly service fees have remained relatively stable over the past few years.