against the security property?
Answering these questions requires
referring to the LA, the recent B.C. Court of
Appeal decision in Leatherman v. 0969708
BC Ltd, 2018 BCCA 33, and the specific
wording of your mortgage.
B.C. LIMITATIONS ACT –
RELEVANT SECTIONS
A limitation period is the time within which
the lender must bring a court proceeding,
aer which the lender loses the right to
pursue the claim in or out of court.
A lender has two years from the day a
claim is discovered to start a court action.
Generally, a claim is discovered when the
lender knows or reasonably ought to know
of the default. However:
n
if the default is for a demand obligation,
the claim is discovered the first day aer
the lender has made the demand and the
borrower has failed to perform; and
n
a claim to realize on security is discovered
on the first day the lender has the right to
start court proceedings to claim against it.
ISSUE
Lenders have limited time to enforce
mortgage defaults, before the lack of
enforcement can turn a valuable mortgage
into worthless paper. ese limitation
periods were changed considerably for B.C.
lenders by the 2013 B.C. Limitation Act
(LA), both as to the length of time and as to
triggers that start the limitation clock ticking.
It is important for lenders to understand and
accommodate the changes.
Given the significant changes and their
potential to compromise lenders' mortgage
investments, B.C. lenders should obtain
legal advice as to:
n
monitoring mortgage defaults,
n
prudent steps to take concerning defaults
under their existing and future mortgage
investments, and
n
possibly making changes to existing and
future mortgage documents to best account
for events that trigger limitation periods.
SAMPLE FACTS
You have lent money under the security of
a mortgage. e loan is payable on your
demand. Until you make the demand,
the borrower is to pay you monthly
interest-only payments.
e borrower defaults under the
mortgage and, according to the mortgage
terms, this gives you the option of calling
the entire mortgage due and to realize on
the security property. You choose to not take
these actions at the time.
Two years later the borrower again
defaults under the mortgage by missing
required monthly payments. You respond by
sending a letter to the borrower demanding
payment of the outstanding mortgage
balance. e borrower does not pay you. You
then start foreclosure proceedings to collect
the entire balance due under the mortgage
(including all unpaid interest) and to, if
needed, realize on the security by way of a
court-ordered sale or foreclosure.
Are you out of time to start a court
proceeding to collect the balance? Are you
entitled to collect all of the outstanding
interest? Are you too late to enforce a claim
AVOIDABLE
SILENT KILLERS
How mortgage defaults trigger limitation periods
BY RAY BASI, LL.B., STAFF EDUCATION AND POLICY REVIEW
30
| winter 2019 cmba-achc.ca CMB MAGAZINE
