Chapter 16 Real Property Liens (Class Notes)

Chapter 16

Remedies

• Expectation damages
• Specific Performance

1. sp historically granted with regards to real prop deals
2. Semelhago v Paramadevan --- held NOT every piece of land is unique, sp only available if plaintiff has legitimate grounds for saying that $ would not be an adequate remedy.

Case Study # 4

Land is unique, and properties don’t come on sale in this area, and therefore there is no compensation the seller should do specific performance. Court will force “Specific Performance”.

Purchaser’s Lien

• If deal is NOT completed due to V, the P will have lien for refund of deposit.
• Allows P to sell land to refund deposit

Vendor’s Lien

• Deal closes but P has NOT paid full price
• V has lien for balance of price, if not paid
• Allows V to sell land to pay balance of price

Case Study # 5

Purchase Lien: ---- when seller doesn’t transfer title to buyer, seller still holding buyer’s 50K. It comes into a place when SELLER DEFAULTS.

Seller’s Lien: -- When deal closes, seller transfers the title to buyer and buyer doesn’t pay the balance. Seller will register lien to secure its interest in the property.

MORTGAGES

• Loan secured by land as COLLATERAL
• Mortgage:-- interest in land that provides security for repayment of loan

· Mortgagor -- Borrower that grants interest in land

· Mortgagee – lender that receives interest in land

Nature of Mortgages

• Land titles system—Mortgagor CHARGES land as security for loan; once loan repaid Mortgagee removes charge. Ownership stays with Borrower
• Registry System – Mortgagor CONVEYS TITLE to Mortgagee as security for loan; once loan repaid Mortgagee conveys title back to Mortgagor (pursuant to Mortgagor’s equity of redemption).

Equity of Redemption – mortgagor will get the title of land back once he/she makes all payments to the lender. It works under Registry system.

Land Registry System

· 1^st Mortgagee gets Legal Title

· Mortgagor gets Equity of Redemption (right to get legal title to land after repaying loan)

· Mortgagor may grant a Subsequent Mortgage

Land Title System

• Mortgagee gets Charge on land
• Mortgagor retains legal title to land
• Mortgagor may grant a subsequent mortgage

Case Study # 6

If it would be in Land Registry System brother is correct and title will be transferred to the Bank.

If it would be in Land Titles the brother is wrong and title remains with the borrower but bank can still enforce the lien.

Vulnerability of Mortgagors

• Mortgagor may lose land

Vulnerability of subsequent (2^nd or 3^rd etc.) Mortgagee

• If 1^st Mortgagee forecloses or power of sales the Mortgagor rights & any subsequent Mortgagee will be extinguished (wiped out)
• Subsequent Mortgagee could sue Mortgagor (but unlikely to recover much, if anything)

Case Study # 12

1^st Mortgagee --- will get everything. Bank will wipe the 2^nd mortgagee. They don’t have to pay anything to anyone.

2^nd Mortgagee --- 2^nd mortgagee can sue the mortgagor, but otherwise it can’t sue the 1^st mortgagee.

Mortgagor --- will not get anything. No more ownership on the land.

Priority of Mortgages

• Registration at land registry office is “NOTICE TO THE WORLD” of your interest in land
• Priority determined by TIME OF REGISTRATION (subject to certain exceptions)

Disposition of Mortgage by Mortgagee

• Mortgagee may wish to sell its mortgage
• Mortgagee can assign its contractual rights & its property rights to TP
• TP must register its assignment
• TP must notify Mortgagor & direct Mortgagor to pay Tp

Disposition of Mortgage by Mortgagor

• Mortgagor can sell its interest in land to a TP
• If Mortgagor does not repay mortgage the TP will take ownership subject to mortgage – the land would still be security for the loan
• Mortgagor may assign its contractual rights but not its obligations – mortgagor will continue to be liable on mortgage although the land is owned by TP

Note: - almost all mortgages now have a “due on sale, leasing, etc.” clause

Case Study # 2

1. YES, Elsa can enforce power of sale or foreclosure.
2. On a power of sale yes Elsa can sue Ivan. In Foreclosure Elsa Cannot sue Ivan.

Terms of the Mortgage contract

• Mortgagor repay loan per agreement
  1. Acceleration Clause – full amount immediately due if default in payment
  2. Prepayment Privilege – early or additional payments without penalty
• Mortgagor pays realty taxes
• Mortgagor maintains insurance
• Mortgagor not waste

Case Study # 10

Yes Insurance premiums default, failure to property taxes, demolished 1 of the factories; therefore bank can enforce the full payment of Mortgage.

Case Study # 11

He could pay it earlier in one payment, it depends on Mortgage agreement. It may or may not.

Sarah could sue for the entire amount i.e. Acceleration clause.

Remedies for Default

1. Sue on Covenant (promise) –

Suing Mortgagor for breach of contract for $ owing

• In B.C., Alberta, Sask., Can’t sue unless Mortgage has waived it statutory protection
1. Possession of Property –

· Mortgagor entitled to possess until it defaults

· Mortgagee usually do NOT want possession because:

1. financial institution prefer $ ( they don’t have expertise)

2. It becomes responsible for repairs, not wasting, reasonable steps to generate revenue & apply it to debt, etc.

3. Mortgagor may in some situations still be able to redeem

4. Mortgagee will take possession if property has been abandoned or Mortgagor is de-valuing it

1. Foreclosure ---

o Mortgagee extinguishes Mortgagor’s EQUITY OF REDEMPTION

o Mortgagee gets a court ORDER FOR FORECLOSURE

o Mortgagee becomes owner of land

o Rare in Ontario

o Foreclosure is not desirable because

1. Financial institution don’t want to own land

2. Financial institution may lose $

Note: - Mortgagee may get a windfall if value of land exceeds debt (but Mortgagor & other subsequent interests may demand a judicial sale)

Foreclosure procedure

• Mortgagee applies to court for Foreclosure
• Mortgagee receives order Nisi
• Mortgagor & subsequent interests are advised
• If mortgage is not placed into good standing w/I required time, FINAL ORDER OF FORECLOSURE will be issued
• It is for full amount, bank will not pay any extra back to the property owner
• May be possible for mortgagor to apply to court to set aside Foreclosure if Mortgagee still holds the land

1. Judicial Sale

o Mortgaged land is sold under a judge’s order

o Sale proceeds are paid in priority: 1^st mortgagee, 2^nd mortgagee….

o If deficiency exists, Mortgagee may be able o sue mortgagor for shortfall (unless prohibited by statute)

1. Power of Sale

o Contractual right allowing Mortgagee to sell the land to pay off debt, after mortgagor defaults

o Financial institution will usually 1^st obtain possession (unless leased)

o Mortgagee must make reasonable efforts to get reasonable price