Tax Sale Forum > Property Lawyer / Legal
Defaulted Mortgage
jima:
Happy Canada Day!
I thought I'd throw this questions out to change things up a bit. Do anyone have experience with buying a defaulted mortgage as a way of acquiring the property. It? seems like a risky proposition if the legal work isn?t done right. There might be a whole bunch of things that could come up, especially if the mortgage has somehow been paid out, but not discharged on title.
Any constructive opinions/ ideas on the subject would be appreciated.
Thanks
Dave2:
--- Quote from: jima on July 01, 2013, 09:18:25 PM ---Happy Canada Day!
I thought I'd throw this questions out to change things up a bit. Do anyone have experience with buying a defaulted mortgage as a way of acquiring the property. It? seems like a risky proposition if the legal work isn?t done right. There might be a whole bunch of things that could come up, especially if the mortgage has somehow been paid out, but not discharged on title.
--- End quote ---
Jima:
This is one of those areas that the devil is in the details. The simple answer is maybe but remember the person that has gone into default can force you to sell the property even if you buy it. see G2020's comments following which are not the situation I assumed you were referring to
This is more likely in a case where the value of the mortgage is substantially less then the value of the property which is the type of situation that would tempt you to buy the mortgage in the first place.
Note see changes from original post which G2020 has mentioned a case that I assumed you were not mentioning.
g2020:
Sorry Dave2 but the simple answer is not yes. The simple answer is no, no, no! No, because it is illegal to buy and sell mortgages unless you are a mortgage broker or equivalent. To get a feeling of how easy it is to get in trouble as a tax sale newbee, go to CANLII and do a search of recent tax sale cases in Ontario. You will see the case where Craig Harvey was convicted for searching out and applying for excess proceeds of tax sale without being licensed to do so. All of us who are not lawyers should periodically review the tax sale case law. The second no is because if you acquire the mortgage you are required to get fair market value for the owner if you sell under power-of-sale, and foreclosure of a tax sale property is not an option. The third "no" is because if the person does not pay their taxes then they are not likely to either pay their mortgage, or take care of the property. I am all for buying mortgages through a mortgage broker or a lawyer - just not mortgages on property that is in tax arrears. So, no no no Dave2 since when I eventually meet you I want you on the street so that you can buy the beers you owe. Cheers!
Dave2:
G2020:
I think we have two situations here. Case one where the mortgage is in default but it has not reached the tax sale which was the case I assumed that Jima was referring to.
In the case you referring to where the mortgage was in default and it was going through a tax sale as well because taxes had not been paid I agree with you. I would not buy a mortgage on a tax sale because you have too much risk of seeing it extinguished
On liscencing agree with your basic logic if you are going to do a lot of them but on a single case or a couple every five or 10 years I have been told you do not have to be liscenced. I think the key here is like in real estate, if you own the property you can sell it but like in real estate the transaction has to handled by a lawyer for it to be registered properly. Otherwise every person who gave a Vendor take back mortgage on a real estate sale could be charged.
The person who told me used the example of collecting HST on sales. If you sell a single piece of land every 5 years you may avoid it. Do it regularly and you have always charge it.
In a tax sale case I also agree with you but for a different reason. Especially as you should not contact the mortgage holder because it is as bad or even worse as contacting the owner.
Mortgages are bought and sold by lenders all the time. It is called assignment of a mortgage. Note if you are the borrower and try to sell the mortgage you have to check the fine print. The mortgage has to be "assumable" otherwise it cannot be sold.
I am assuming Jima is refering to a private mortgage and would appreciate other comments
brigg:
--- Quote from: Dave2 on July 02, 2013, 07:43:43 PM ---G2020:
I think we have two situations here. Case one where the mortgage is in default but it has not reached the tax sale which was the case I assumed that Jima was referring to.
In the case you referring to where the mortgage was in default and it was going through a tax sale as well because taxes had not been paid I agree with you. I would not buy a mortgage on a tax sale because you have too much risk of seeing it extinguished
On licencing agree with your basic logic if you are going to do a lot of them but on a single case or a couple every five or 10 years I have been told you do not have to be licenced. I think the key here is like in real estate, if you own the property you can sell it but like in real estate the transaction has to handled by a lawyer for it to be registered properly. Otherwise every person who gave a Vendor take back mortgage on a real estate sale could be charged.
The person who told me used the example of collecting HST on sales. If you sell a single piece of land every 5 years you may avoid it. Do it regularly and you have always charge it.
In a tax sale case I also agree with you but for a different reason. Especially as you should not contact the mortgage holder because it is as bad or even worse as contacting the owner.
Mortgages are bought and sold by lenders all the time. It is called assignment of a mortgage. Note if you are the borrower and try to sell the mortgage you have to check the fine print. The mortgage has to be "assumable" otherwise it cannot be sold.
I am assuming Jima is refering to a private mortgage and would appreciate other comments
--- End quote ---
If you are purchasing someone else's mortgage there is no need to be licenced. If you where selling someone else's mortgage to a third party and charging a fee you would require a mortgage agent's or mortgage broker's licence (at least in Ontario, not sure about other provinces).
G2020 is right private mortgages are bought and sold on a regular basis. Most private mortgage's have terms in the contract that state that the mortgagor must keep his property taxes paid up to date and if he does not the mortgage will be in default and the mortgagee will have the right to pay the taxes for the mortgagor and add that amount to the mortgage balance (typically a fee can be charged by the mortgagee for his troubles). After the mortgage is in default the mortgagee will then have the right to start power of sale or foreclosure proceedings.
So if you where purchasing a mortgage with tax arrears your lawyer should let you know this after he searches title and will probably advise you to either not purchase the mortgage or to at least have the tax arrears paid off before your money changes hands to avoid having the property sold at a tax sale and you left holding the bag.
Since the foreclosure process is lengthy and expensive you would want to make sure there is enough equity in the property to make it worth your while.
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