There was a time when any desire to move toward a foreclosure proceeding required approval in front of a judge. However, unless there is farm land involved (in which case a leave order is necessary) or the land has been registered under the provisions of The Registry Act, or some other infrequent exceptions, the courts don’t have to get involved in foreclosures or mortgage sales in Manitoba. Creditors can still use the legal system to obtain a court order, but nowadays most of those proceedings just go through the Land Titles Offices, controlled by the District Registrars. The process has become swifter and more efficient – but there are still rules that the creditors have to follow.
An Overview of the Process
1. Notice of Exercising Power of Sale
When the borrower does not make a payment or breaches the mortgage contract in some other way, and that default extends for a minimum of one month (unless the mortgage specifies a different time period), the creditor can start the process of a mortgage sale. Frequently, the creditor will issue a demand letter to the borrower, outlining the default and the steps that are necessary to bring the account current or simply pay the entire balance due within a timeline that generally lasts between 10 and 14 days. This demand letter is not legally required but is customary. If the borrower fails to meet the demand, then the creditor will file a Notice of Exercising Power of Sale (NEPS) with the proper Land Titles Office (LTO), which will usually issue approval within a couple of weeks.
2. Service of the NEPS
The borrower and any other interested parties must receive copies of the NEPS through personal service. If the borrower is an individual, that person’s spouse or common-law partner must also receive service of the NEPS unless the land is not considered homestead land. The creditor may serve the NEPS before the LTO has approved it, that is not customary, because if the LTO mandates any changes (which happens), then the NEPS will have to be served again.
3. Ongoing Default and Application for Order for Sale
If the default extends for at least another month beyond service of the NEPS, then the creditor may apply to the LTO’s District Registrar for an Order for Sale. This takes place either through private sale, public auction or both. Best practice is for the creditor to apply for the order through both methods to give them the most flexibility and to streamline the process. After the District Registrar approves the Order for Sale, then the auction phase will come first. If that does not raise the desired price, then the private sale can happen next – although the property can only go to auction once.
4. Exceptions Requiring a Court Order
Some exceptions have been listed above. However, when the default listed in the NEPS is for anything other than payment of principal, interest, taxes or insurance premiums, then the creditor must secure a Court Order approving the application for the Order for Sale.
5. Advertisement for Auction
When a public auction is part of the process, the creditor must advertise the sale in a daily newspaper local to the property’s location, at least 14 clear days before the sale date. Some areas require at least 16 clear days of notice and publication in two newspapers. The borrower must receive the advertisement and the Order for Sale in the mail, as must any other interested parties.
6. Remedy and Reinstatement by the Borrower
Before the sale or final foreclosure, the borrower can simply pay the arrearage and associated costs, unless the mortgage has matured and the creditor has demanded payment is in full. If remedy is possible, the borrower receives full reinstatement on the mortgage after satisfying the default.
7. Possession of the Property
In most cases, the borrower stays in possession of the property until foreclosure or sale unless the creditor demands, and receives permission for, possession earlier. This will depend on the situation. If the borrower will not leave voluntarily, the creditor may have to obtain a Court Order for Possession. An auction sale transfer the property “as is, where is,” which is why many creditors will wait until after the auction (successful or otherwise) to demand possession.
8. Auction Reserve Bid
The creditor puts together a reserve bid and may reveal its details before the auction. Generally, the amount of this bid is the value of the remaining mortgage balance in addition to costs. If this would exceed the property’s fair market value, then this reserve bid may be lower, more in line with the market, assuming it is a reasonable amount.
9. Transfer of Property after Auction
If a bidder comes away from the auction sale with the property, they must put down at least 20% immediately with a certified cheque or bank draft and then enter into an agreement for purchase and sale. This form is part of the paperwork that the LTO approved with the Order for sale application. It is wise to make sure that all bidders have a down payment ready before the auction begins – some first-time bidders may not know about this requirement.
10. Auction or Private Sale
If the auction does not reach the desired value, or if the creditor moves right to private sale, which generally involves listing the property with a realtor. If the borrower still lives in the house or refuses to be cooperative in other ways, this can be difficult. If the creditor wants to go right to a private sale, he must mail a Notice of Intention to Sell by Private Contract to all interested parties at least 16 clear days before submitting the agreement of sale to the LTO for approval.
11. LTO Approval of Private Contract
Once the creditor has found a buyer and approved the offer, the District Registrar must approve the contract. The purchase price must not be less than 90 per cent of the average price of the realtor’s opinion of the value and the current property appraisal value.
12. Borrower Liable for any Deficiency
If the sale of the property does not satisfy the balance of the mortgage due plus costs, the borrower and any other people on the contract are liable for the difference.
13. Application for Notice of Application for Final Order of Foreclosure
If the auction does not produce enough money, and the mortgage has been in default for a minimum of six months, the creditor 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
This final order gives the borrower one final month in which to redeem the property. If the borrower does not, then the legal title goes entirely to the creditor. The notice for this must be served personally to the borrower as well as any other interested parties. Parties can request an extension, but these are not customary without a legitimate reason.
15. Final Order of Foreclosure
If the borrower does not redeem the property mortgage within that final month, the District Registrar may provide a Final Order of Foreclosure which officially transfers legal title to the creditor free and clear of any encumbrances. This brings the mortgage contract to a close, and if the creditor sells the property after this time for less than the balance, the borrower is not liable for the difference.