Mortgage Broker

Summer 2019

Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.

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Page 18 of 47

CMB MAGAZINE summer 2019 | 19 however, is not a demand obligation because it was payable without demand on October 31 of each year. e Mortgage also provides that the property mortgaged is security for the debt. With respect to security for the debt, s. 15 of the Act applies. e right to realize on the security arises upon discovery of that right. Discovery of the right, by s. 15, arises upon default. e default occurred when an interest payment was not made under the Mortgage, and thus the right to realize on the security arose on such default, and the two-year limitation period would apply from default, unless postponed. With respect to the demand obligation, s. 14 applied. us, the limitation period with respect to the ability to seek judgment enforcing the covenant to pay ran from November 9, 2016, the first day of a failure to pay aer demand. With respect to the right to realize on the security, the limitation period ran from the first day that the right to enforce the security arose, namely, the date of default, October 31, 2013, by virtue of s. 15. do not have a fixed end date for repayment, and enforcement occurs when the lender demands it. In Leatherman, the mortgage and general security agreement secured a loan between friends. e terms of that mortgage dictated that the loan was payable on demand and interest payments were required annually each October 31. e borrower failed to make the interest payment in October 2013 and, aer some correspondence between the parties regarding the loan, the lender demanded the full amount on November 9, 2016. e Court outlined sections 14 and 15 of the Limitation Act and how they affect different components of an on-demand mortgage. With respect to both sections, the Court stated that: is Mortgage, like most mortgages, includes both a covenant to pay and security for the debt. e covenant to pay the principal, considered on its face, and alone, is a demand obligation. With respect to it, s. 14 applies; that is, it is not payable until demand. e obligation to pay interest, As such, the lender was entitled to pursue the principal amount and the two-year interest not more than two-years overdue from the demand date, November 9, 2016. However, the limitation period for the lender to enforce their security interest started on the date of default, October 31, 2013. In other words, the lender's rights to seek an Order Absolute to earn title of the property and to seek interest payments longer than two-years overdue were extinguished. PRACTICAL TAKEAWAY: Carefully review mortgage documents upon default, especially with on-demand mortgages. Lenders may not be aware of the different starting points from the Limitation Act. When dealing with an on-demand mortgage foreclosure, always determine the demand date and the date the mortgage became enforceable to determine the available remedies for your client. I also highlight the Court of Appeal's threshold for classifying an on-demand mortgage. Simply inserting the term "payable on demand" is not sufficient to characterize a mortgage as a demand obligation under section 14 of the Limitation Act. e Leatherman mortgage was a reasonable arrangement in a high-risk lending environment where there was little prospect for repayment on strict terms or on a specified due date. In short, look to the mortgage in its entirety and the context in which it was agreed upon. PRACTICAL TAKEAWAY: Always be clear of the mortgage terms. The mortgage must go beyond stating "payable on demand" and a lender must be vigilant as to the context surrounding the mortgage. PRACTICAL TAKEAWAY: In your commitment letters or other documents provided to the borrower or lender, clarify your role and consider stating that after funding your role is at an end and that you are not retained for preparing renewals at this time. B. GST "SUPER" PRIORITY Although I appreciate that this topic keeps showing up these days, two recent cases have highlighted the importance of deemed trusts in the mortgage lending practice and, as such, I find it necessary to cover this topic again. Deemed trusts have, and should always be, a large concern to lenders, particularly In documents provided to the borrower or lender, clarify your role and consider stating that after funding your role is at an end and that you are not retained for preparing renewals." newcaselaw

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