Mortgage Collections In British Columbia

WHAT IS A MORTGAGE

A mortgage is "a conveyance of property as a security for the payment of a debt or the discharge of some other obligation for which it is given, the security being redeemable on the payment or discharge of such debt or obligation."1 So a mortgage is comprised of two parts:

(a) a promise to satisfy an obligation (usually; pay a debt) (a "Covenant"); and

(b) a conveyance of property2 as security for the Covenant (a "Charge").

WHAT DOES A MORTGAGE CHARGE?

Although mortgages most commonly charge only real property (land), the Charge can be over any type of property; real property, personal property, incorporeal property or any combination of those. Mortgages of real property are exactly that; the Charge gives the lender as security for the Covenant an interest in the real property charged and buildings and fixtures (which at law are treated as part of the real property), and nothing more.

Relatively few mortgages of real property are of bare land; most involve real property in conjunction with buildings, fixtures, personal property and (occasionally) incorporeal property. Mortgages of residential real property almost always involve real property in conjunction with buildings and personal property (e.g. appliances, lighting "fixtures," window coverings, air conditioners, vacuum systems, etc.) and not infrequently incorporeal property (e.g. rents). Mortgages of commercial real property almost always involve real property in conjunction with buildings, personal property (e.g. the personal property described above plus inventory, equipment, machinery, supplies, etc.) and often incorporeal property (e.g. liquor and other government licenses, protected business names, contracts with suppliers and builders, etc.).

Some lenders attempt to increase the scope of their security by taking assignments of rents (perhaps more properly; mortgages of personal property) and/or security agreements (mortgages of personal property) as collateral security for loans secured primarily by mortgages of real property. Assignments of rents are commonplace and only involve a few enforcement considerations.

Collateral security agreements, however, present their own fairly complex security and enforcement considerations, which are beyond the scope of this paper.3 In addition, loans often do not secure incorporeal property.

WHAT RIGHTS DOES A MORTGAGE LENDER HAVE?

From a lender's perspective, a mortgage is essentially security for money lent. Lenders have rights against the parties to the Covenant (rights "against the person" or "in personam") and they have rights against the property which is the subject of the Charge (rights "against the property" or "in rem").

IN PERSONAM

There is one principal legal remedy for lenders enforcing rights in personam; they are enforced through the Court by judgment. Covenants are then merged in judgments and lenders have the (often unsatisfactory) methods of enforcing (or "executing on") judgments available to any other successful litigant. Exigible property of the parties to the Covenant (then "judgment debtors") may be sold, by the Court Bailiff or otherwise (if any such property can be found). And Orders of the Court may be obtained requiring judgment debtors to make payments in satisfaction of judgments (although such Orders are often ignored by judgment debtors).

IN REM

There are two remedies for lenders enforcing rights in rem; sale and foreclosure.

SALE

By far the most common method of enforcing rights in rem is by sale through the Court. Ownership of real property is fairly certain and simple, due to the Torrens land title system in British Columbia. Real property cannot be moved out of the jurisdiction or otherwise hidden. And there is always a reasonably active market for real property.

Mortgages often still provide that lenders with a mortgage in default can sell the property which is the subject of the Charge without the assistance of the Court.

That is the single most common and powerful remedy available to lenders in some jurisdictions, including Ontario. But it is very doubtful if the land title offices in British Columbia would participate in such sales, thereby making them of little or no value. And the British Columbia Court of Appeal has made it clear that lenders attempting to sell real property privately under the terms of their mortgages will be faced with the same delays as lenders doing so in the normal way through the Court.4 As a practical matter, all lenders in B.C. sell their mortgaged real property under the Rules of Court and in foreclosure proceedings ("Foreclosures"). Doing so generally protects lenders (absent bad faith) from actions against them in wrongful sale (which...