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e court proceedings were commenced within two years of the time the demand was made and so the limitation period had not expired, except for as to mortgage payments that were more than two years old (as discussed below). e mortgage in Leatherman required the borrower to, until the lender demanded that the mortgage be paid in full, make minimum payments of interest only at the times specified in the mortgage. e court said the obligation to make the payments was a contingent obligation as the payment became due without demand at the times specified in the mortgage. e two-year limitation ticks for each payment from the date the payment was due and missed. Accordingly, unless the borrower agreed to postpone the limitation clock, time had expired to collect payments older than two years before the lender started the court proceedings. e mortgage in Leatherman provided that if a default occurred, the lender could apply to the court for an order that the security property be sold on terms approved by the court and/or become owned by the lender. e court said that as the right to realize on the security arose upon the default (that is, when the payment was missed), without any demand being made, the limitation clock ticked from that time. Unless postponed, the limitation clock to realize on the security had expired as more than two years had passed from the time the first default occurred. e lender had the right to enforce the security from the time of first default. e result in Leatherman was that: n the lender was le as an unsecured creditor (the security having been extinguished), and n the balance owing under the mortgage was, subject to any proof of the borrower's having acknowledged (that is, postpone) the claim, reduced by the amount of the payments that were due but not made more than two years before the lender started the foreclosure proceedings. e case does not address whether any default under the mortgage, no matter how minor, triggers the right to commence action and accordingly starts the limitation clock. Can a borrower commit a very minor offence (such as not providing required records under a commercial mortgage) and lay in the weeds for two years? If aer two years of the default the lender has not commenced a court action, can the lender (or a subsequent chargeholder on title) have the property released as security based on the very minor default? When a lender starts a foreclosure action, the borrower is generally at least on one occasion able to cure the default and have the court reinstate the mortgage. Will lenders faced with defaults have to start and participate in such actions to avoid losing their security (if not more)? Leatherman is the first major word on applying the LA to mortgage defaults; it certainly will be far from the last. So many questions remain. TAKEAWAYS is case provides opportunities for lenders to take steps to better protect themselves. Following are some takeaways and suggestions lenders may want to review with their lawyers. is will require interpreting mortgage provisions in your specific mortgages: n Not enforcing the obligation to pay the entire mortgage balance in a timely manner can extinguish the debt entirely. n Not enforcing payments in a timely manner can make payments outside the limitation period uncollectable. n Not enforcing security in a timely manner can extinguish the security and convert the mortgage into an unsecured loan. n A mortgage can contain both contingent and demand obligations. Contingent obligations are triggered by the borrower making a default under the mortgage; demand obligations are triggered by the lender making demand and the lender defaulting on the demand. n e limitation period for each of these obligations is two years, aer discovery. e limitation period is subject to postponement, if the borrower acknowledges the debt in writing or by performance of an obligation. n Review your current mortgage portfolio to identify existing defaults and either, as appropriate, seek acknowledgements or commence court proceedings. (Don't be a test case. Seek legal advice as to even minor defaults.) n Monitor your mortgages and address defaults quickly. . Use a calendar system, with lots of timely warnings, to diarize borrowers' obligations and limitation periods. . Regarding defaults, seek acknowledgement (where you desire) or start court proceedings. (Don't be a test case. Seek legal advice as to even minor defaults.) n If unsure of whether a default is a contingent or demand obligation, err on the side of considering it a contingent obligation and seek acknowledgement or commence court proceedings accordingly. n Word your mortgages to create demand obligations, where possible, to avoid the limitation clock ticking without your active involvement of issuing a demand. . Consider amending your template documents. . Consider whether it is desirable and possible to amend your existing mortgage documents. CMB MAGAZINE cmba-achc.ca winter 2019 | 33 legalease When a lender starts a foreclosure action, the borrower is generally at least on one occasion able to cure the default and have the court reinstate the mortgage. Will lenders faced with defaults have to start and participate in such actions to avoid losing their security?"

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