Mortgage Sale and Foreclosure Proceedings in Manitoba
Aside from situations involving farm land (where a leave order must first be obtained before commencing proceedings), land registered under The Registry Act (where the Courts have jurisdiction), and other rare exceptions, mortgagees can generally pursue mortgage sale and foreclosure in Manitoba without Court action. Although a creditor holding a debenture or other collateral security over both real and personal property still has the right to proceed to approve a sale by Court Order, the majority of mortgage sales and foreclosures in this province are simply administered by the District Registrars of the Land Titles Offices. (Please note that equitable mortgages by way of Memorandum of Deposit or letter of undertaking with Caveats must be enforced by Court action.) The standard Manitoba mortgage sale process, as prescribed under The Real Property Act (C.C.S.M. c. R30) is both economical and efficient, but is a strict process that must be followed.
1.) Notice of Exercising Power of Sale – Where the debtor has failed to make a required payment or is otherwise in breach of a condition or covenant of the mortgage, and this default continues for at least one month (or longer, in the rare case that the mortgage specifies a longer period), the mortgagee has the right to commence mortgage sale proceedings. Although not a requirement under The Real Property Act, a mortgagee or its solicitor will typically issue a demand letter to the mortgagor, providing details of the default; the steps required to either remedy the default or pay out the mortgage entirely; and a timeline for doing so (usually about 10 to 14 days). If the mortgagor does not comply with the demand, the mortgagee will usually instruct its solicitor to commence mortgage sale proceedings. The process is commenced by filing a Notice of Exercising Power of Sale (“NEPS”) in the appropriate Land Titles Office (“LTO”). The LTO will usually give its approval of the form of NEPS within 2 to 3 weeks.
2.) Service of NEPS – Copies of the NEPS must be served personally on the mortgagor and any other parties appearing at the time of filing the NEPS to have any interest in the lands subsequent to the interest of the mortgagee. If the mortgagor is an individual, the mortgagor’s spouse or common-law partner must also be served with the NEPS unless the land is not homestead land. Although the NEPS can be served prior to receiving LTO approval, the best practice is to serve the NEPS after LTO approval is received, so as to avoid having to repeat the step if the LTO requires any changes to the NEPS (as they sometimes do).
3.) Continuing Default and Application for Order for Sale – Should the default continue for at least one month after the NEPS has been served, the mortgagee may make application to the District Registrar of the LTO (the “District Registrar”) for an Order for Sale, by either public auction, private sale or both. It is recommended that the mortgagee always apply for an Order for Sale by both methods, in order to maximize efficiency and flexibility. Once the District Registrar is satisfied that the application is complete, the Order for Sale will be made directing that the disposition be conducted either by public auction or private sale. The auction process comes first, followed by private sale if the auction proves abortive. (Please note there is only one chance to go to auction.) On rare occasions, a mortgagee may opt to proceed directly to private sale.
4.) Court Order Required in Some Circumstances – It is important to note that where the alleged default in the NEPS is other than one of the “big four” (payment of principal, interest, taxes or insurance premiums), the mortgagee will have to obtain a Court Order declaring that the mortgagee may proceed with the application for the Order for Sale.
5.) Auction Advertisement – Where proceeding by public auction, the sale must be advertised in one of the local daily newspapers (i.e. local to the location of the property) at least 14 clear days prior to the date of sale. In some instances, publication in two papers may be required, in which case at least 16 clear days’ notice should be provided. A copy of the advertisement and Order for Sale must be sent by mail to the mortgagor and to any other interested parties.
6.) Remedy by Mortgagor and Reinstatement – At any time prior to the actual sale or ultimate foreclosure the mortgagor can remedy the default by simply paying the arrears and costs, unless the mortgage is a demand mortgage, or has matured and demand for payment in full has been made. If the default can be remedied, the mortgagor will be fully reinstated on the mortgage upon remedying the default.
7.) Possession of Property – Ordinarily, the mortgagor will remain in possession of the property until sale or foreclosure unless the mortgagee demands earlier possession. This will be determined on a case by case basis, taking into account the circumstances of the property. Where the mortgagor fails to vacate voluntarily, it may be necessary to seek a Court Order for Possession. A sale by public auction relieves the mortgagee of the responsibility to provide vacant possession, as the successful bidder is purchasing the property “as is, where is”. As a result, it is common for a mortgagee to wait until after a failed auction attempt before demanding possession.
8.) Auction Reserve Bid – The mortgagee will prepare a reserve bid and may disclose same prior to auction. Typically the reserve bid is set at the value of the outstanding mortgage balance plus costs. However, where the outstanding mortgage balance plus costs would exceed the fair market value of the property, there is provision to set the reserve bid at a lesser amount (often tied to the fair market value), provided it is reasonable in the circumstances.
9.) Transfer After Successful Auction – if there is a successful bidder at the auction sale, they must immediately provide a minimum 20% down payment by way of a bank draft or certified cheque, and enter into the agreement for purchase and sale (the form of which will have been approved by the LTO with the Application for Order for Sale). It is good practice to ensure that anyone bidding at the auction has the down payment at the ready. First time buyers may not be aware of this requirement. The purchase and sale transaction following a successful auction is generally straightforward.
10.) Auction or Private Sale – Instead of auction, or alternatively if the auction proves abortive, the mortgagee may endeavor to sell the property privately, typically through listing it with a realtor. Such a process may be problematic where the mortgagor remains in possession or is otherwise uncooperative. Also, when proceeding directly to private sale, a Notice of Intention to Sell by Private Contract must be mailed to all parties required to be served with the NEPS at least 16 clear days prior to the submission of the agreement of purchase and sale to the applicable LTO for approval. Personal service of this Notice is not required.
11.) LTO Approval of Private Contract Required – Once a purchaser has made an offer that is acceptable to the mortgagee, it must be approved by the District Registrar. The District Registrar will approve such transactions only where the purchase price is not less than 90 % of the average price of the then current appraisal of the property from an accredited appraiser and the then current opinion of value of the property from a realtor.
12.) Mortgagor Liable for Deficiency of Proceeds – Should the proceeds of any sale prove insufficient to discharge the balance of the outstanding mortgage and costs, the mortgagor (and any covenantor to the mortgage, if applicable) will remain liable on the covenant contained in the mortgage for any deficiency.
13.) Application for Notice of Application for Final Order of Foreclosure/Final Notice to Redeem – Where the auction has proved abortive and the mortgage has remained in default for at least 6 months, the mortgagee can apply to the District Registrar for a Notice of Application for Final Order of Foreclosure/Final Notice to Redeem.
14.) Application for Issue of Order of Foreclosure – Once satisfied with the application, the District Registrar will issue a Notice of Application for Final Order of Foreclosure/Final Notice to Redeem requiring the mortgagor to redeem the property within one month, failing which legal title will be vested entirely in the mortgagee extinguishing any subsequent encumbrances. This notice must be served personally on the mortgagor and any other interested parties. At this point, any interested party may apply to the District Registrar for an extension of this redemption period. However, such an extension would not generally be granted unless the requesting party can prove a legitimate cause for further delay.
15.) Final Order of Foreclosure – Where the mortgagor fails to redeem the mortgage within the requisite time, the District Registrar may issue a Final Order of Foreclosure which, after being registered in the LTO, will transfer legal title to the mortgagee free and clear of all subsequent encumbrances. Once legal title to the lands has vested in the mortgagee, the covenants contained in the mortgage are fully extinguished. Accordingly, should the property subsequently be sold for an amount less than the original mortgage debt, the mortgagee would no longer be in a position to proceed against the mortgagor or any covenantor for the deficiency.
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DISCLAIMER: This article is presented for informational purposes only. The views expressed are solely the author(s)’ and should not be attributed to any other party, including Taylor McCaffrey LLP. While care is taken to ensure accuracy, before relying upon the information in this article you should seek and be guided by legal advice based on your specific circumstances. The information in this article does not constitute legal advice or solicitation and does not create a solicitor-client relationship. Any unsolicited information sent to the author(s) cannot be considered to be solicitor-client privileged.
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