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3. Standard Charge Terms in a mortgage and how they affect sale of properties under Power of Sale

| POS Overview | Bank Options | Legal Aspects| Standard Charge Terms | POS Considerations | Quit Claim | Foreclosure | Power of Sale | Issues | Sale Price | POS Process | POS appropriate? | Clauses in Offer | How will Mark Protect you? | Conclusion | Power of Sale Properties from our company

 

In Ontario there is the Land Registration Reform Act which stipulates all the rules of how properties are owned.  Under this act is the "Set of Standard Charge Terms" which are registered at the registry office of any municipality in Ontario. 

The standard charge terms can vary slightly and banks and institutions register their own set of standard charge terms at the registry offices too.  Their set of standard charge terms are almost all exactly the same, except for the fact that these standard charge terms are registered under each banks own name and are completely in favour of that particular bank. 

The main reason for registering these standard charge terms is because each bank will refer to their standard charge terms in every mortgage that they receive from each owner and since they are already registered at each registry office, it makes things much simpler and easier for the bank to have them included in each and every mortgage (charge) that is registered at the registry office.  (as an aside, your mortgage will contain a reference to set of standard charge terms registered as instrument number xxxxxxxxx at the land registry office of your municipality.  Again, this is a convenience issue plus a legal requirement)

There are about a dozen or so set of standard charge terms that each bank uses and registers.  The important and very brief headings for each term are outlined below. 

  • Exclusion of Statutory Covenants - meaning that these are deemed to be included in any charge (mortgage) by the bank
  • Right to charge the land - the right to register the mortgage on the property
  • No act to encumber - the bank has the charge and the mortgage must be recorded in the land registry office
  • good title and fee simple - this means the title to the property is lawful and free of encumbrances
  • Promise to Pay and Perform - this is a key term which means the owner must pay until the principal is paid back, the principal can include principal, interest and another other charges that may be due and payable AND this terms also states that if there is a shortfall, the bank can personally sue the owner for any shortfall  (this is why many owners who end up losing their property by power of sale end up declaring bankruptcy as they will no longer be liable for any shortfall on the mortgage or any other debts, once they are discharged from bankruptcy.  This is another very detailed topic, expert legal advise is advised!)
  • Interest after debt - this term means that the interest is compounded when there is default, a double whammy!
  • No obligation to advance - this term means that no matter what the mortgage company does, they still retain the right to all other remedies under the law, including power of sale
  • Costs added to Principal - as it sounds, all costs are added to the principal.  Such costs can include interest, utilities, assessments, levies, taxes, rates, legal fees and any other expenses - these can add up
  • Power of Sale - this term is very detailed, but the highlight is that banks can initiate selling under power of sale after only 15 days of default of payment and may notify no less than 35 days in writing to the owner and enter on and sell the land.  In other words, if you fail to make a payment, the bank can begin a sale under POS 15 days after that default and they can sell and transfer the land to the new buyer 35 days after that date.  Thus, you could lose your property 45 days after you miss a payment.  In reality, banks usually issue warning letters well in advance of selling under POS and typically wait 3 months or longer before they begin POS proceedings.  This standard terms gives them the right to do it much quicker.
  • Quiet possession - the bank can take possession of the property.  Again, in reality and under the Law in Ontario, the bank must go to court to obtain possession of the property, not an easy task, but they still retain the right to do it if they want
  • Right of Distrain
  • Further Assurances
  • Acceleration of Principal and Interest - all the principal and interest for the entire loan become due and payable, plus all other costs

So there you have it.  These are the most common set of standard charge terms that all banks use and register along with your mortgage.  Royal Bank may have the order a little different compared to Scotia Bank, and BMO may have one or two more terms, but all sets of standard charge terms contain about the same terms as shown able.

So, why am I telling you all this?  The reason is that if you can understand the basics of the standard charge terms then you now understand the playing field.  You now know the standard rights that you must navigate around when it comes to your mortgage.  Everyone pays close attention to your mortgage rate, term, payments, amortization, but few pay attention to the fine print. 

The fine print in your mortgage really is there to explain what can happen to the owner in the event that the owner defaults on payment and outlines the rights and remedies open to the bank.  Now that you know the set of standard charge terms you can see how your relationship with your bank begins with the mortgage and sets out the terms of your entire agreement and transaction with your bank.  They are giving you the money so you have to give them the mortgage.  It's a nice arrangement when it works.  When it doesn't work, (when the owner defaults), then the standard charge terms become extremely important and lay the foundation for all remedies and rights of the bank and owner.

Again, every lender/bank/institution/mortgagee has their own set of standard charge terms that are registered at the registry office and referred to in every new mortgage that.

The great thing about Power of Sale is that POS lets the bank "Sell and Sue" which means not only can the bank sell the property to get their debt repaid, but they can also sue for any deficit. 

The 'fairness' about POS in Canada is that the bank cannot profit from POS, any profits go to the owner.  Not likely, but if there are profits that's where they go.  In the United States the banks are privately owned and operated and are profit oriented, thus they prefer foreclosure for profit.

You may wish to read an entire example of a set of Standard Charge Terms from CIBC

The next section of this series of articles deals with the Advantages and Disadvantages of the Power of Sale  option

 


This series of articles about Power of Sale Properties, Foreclosures and advice when you purchase a power of sale property is brought to you by A. Mark Argentino, P.Eng., Broker.  Please understand that these are my personal thoughts and experiences, do not use my information herein as legal advice and always professional seek legal advice on any issue pertaining to real estate and especially Power of Sale.

| POS Overview | Bank Options | Legal Aspects| Standard Charge Terms | POS Considerations | Quit Claim | Foreclosure | Power of Sale | Issues | Sale Price | POS Process | POS appropriate? | Clauses in Offer | How will Mark Protect you? | Conclusion | Power of Sale Properties from our company

 

If you have any questions or require further information about Power of Sale properties or anything to do with real estate, please send me an email

I can assist you with all of the complexities when you purchase or sell your next home.  Please don't hesitate to email me

Thank you,
Mark

You may read more about Power of Sale, Bank Sales and Foreclosure Properties

or go back to list of Real Estate Helpful Articles

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What is a Foreclosure Property?  What is a Power of Sale Property?

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Definition of Foreclosure or Bank Foreclosures

A situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract.

Power of Sale and Tax Sale properties - questions and answers

What is a Power of Sale Property?Power of Sales Properties

When a borrower defaults on a home mortgage, the lender may attempt to recover its losses by selling the property under power of sale.

Definition of Power of Sale:  A clause commonly inserted in a mortgage and deed of trust that grants the creditor or trustee the right and authority, upon default in the payment of the debt, to advertise and sell the property using standard methods such as the MLS or at public auction, without resorting to a court for authorization to do so and without actually taking possession of the property.

Once the creditor is paid out of the net proceeds, the property is transferred by deed to the purchaser, and the surplus, if any, is returned to the previous owner (the debtor).  The debtor is thereby completely divested of any interest in the property and has no subsequent Right of Redemption—recovery of property by paying the mortgage debt in full once title has transferred to the new buyer.

You will often see advertisements about Court Auctions, Pre-Foreclosures, Homeowners in Bankruptcy, HUD Homes, VA Homes, Government homes and similar sounding wording.  In my experience, many of these types of investment property opportunities come out of the US and are not as common here in Ontario.  In our trading area, most of the POS, Tax Sale properties or foreclosure properties are put on the MLS before they reach the point of foreclosure.  The reason for this is that our provincial laws are very strict about the procedure and marketing of a power of sale property and the company or person who is initiating the power of sale must do their best to obtain what is called TRUE market value as opposed to fair market value for the property, otherwise if the property is sold too far under TRUE market value, the owner could sue them for the difference.  Another reason is because power of sale is much less expensive remedy for the lender to attempt to get their money back.

What's an estate sale? What is a Distressed Sale?   Why fix up run-down homes?  Sadly for the previous owner, the answer is simple: Your potential accelerated wealth creation.

Adding value to run-down homes through quick cosmetic rehabs is one of the most powerful leverage tools available to property investors.  Traditional 'buy and hold' strategies are too slow for the investor looking for accelerated wealth creation.  On the other hand, buy and hold strategies show strong price growth over time and seem to work well here in Ontario and the GTA.

Please understand that these are my personal thoughts and experiences, do not use my information herein as legal advice and always professional seek legal advice on any issue pertaining to real estate and especially Power of Sale.

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| POS Overview | Bank Options | Legal Aspects| Standard Charge Terms | POS Considerations | Quit Claim | Foreclosure | Power of Sale | Issues | Sale Price | POS Process | POS appropriate? | Clauses in Offer | How will Mark Protect you? | Conclusion | Power of Sale Properties from our company

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