Most of us who have bought property (either commercial or residential) have borrowed money to finance the purchase. One of the tried and tested ways lenders secure their mortgage loans is to take a mortgage on the property being purchased. The borrower is called the mortgagor because he or she mortgages his/her property to the lender in exchange for the loan; the lender is the mortgagee who registers the mortgage on the property.
A mortgage allows the mortgagee to commence foreclosure proceedings in Supreme Court in the event that the mortgagor/borrower cannot pay (i.e. defaults). There are other types of default, such as when the mortgagor permits unauthorized charges to be registered on title, does not pay property taxes or fails to maintain or protect the property.
Upon default, the mortgagee ordinarily makes a demand for payment of all arrears (i.e. the entire mortgage loan which becomes accelerated upon default), plus interest and legal expenses.
If payment of the foregoing is not made within the time required, the mortgagee can commence foreclosure proceedings.
If the mortgagor or any other persons with an interest in the land subsequent in priority to the mortgagee’s interest wants to oppose the relief sought in the foreclosure, or simply wants be notified of each court date, they may file a response and serve it on the other parties.
The first court appearance is the application for an Order Nisi. Here, the mortgagee will seek an order that the mortgage is in default, an order of personal judgment against the mortgagor(s) based on the personal promise to pay, and it may seek other terms such as the the length of the applicable redemption period and the amount required to redeem as well as legal costs.
The redemption period is the amount of the principal, interest and expenses required to payout the mortgage and stop the foreclosure. The usual length of the redemption period is 6 months unless the mortgagee can show risk to its security that would warrant something shorter (e.g. there being insufficient equity in the property to pay the entirety of the mortgage).
If the mortgagor fails to redeem before the end of the redemption period, the mortgagee may seek an Order Absolute, which basically involves title to the property being transferred to the lender as the new owner. If there is a shortfall for the lender, then it will not be able to recover that shortfall from the borrower if it obtains an Order Absolute.
Alternatively, the mortgagee may seek an Order for Conduct of Sale which allows the lender to list and sell the property through a realtor and then seek an Order for Approval of Sale when it receives an offer to purchase that it prefers. The Court will, assuming it is satisfied that the offer reasonably reflects fair market value for the property, approve the sale. If there is a shortfall between the proceeds of sale and what the mortgagee was owed on the mortgage, an Order for Conduct of Sale allows it to claim against the mortgagors to recover it. On the date the application for Approval of Sale is heard, other interested buyers may submit bids in sealed envelopes in hopes to secure the purchase. The Court will unseal these bids and determine which offer is the best and should be approved.
These are the basic procedural steps and concepts involved. Foreclosures can be much more complex, particularly if there are competing charges registered on title or disputes about amounts owed. The process for competing bids can also be complex for parties unfamiliar with the process.
If you are involved in a foreclosure proceeding, or believe one is imminent, you should seek legal advice forthwith to protect your rights.