Mortgage (Penalty)

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Date Retrieved:	2024-04-30
CLNP Page ID:	2367
Page Categories:	Contract Law
Citation:	Mortgage (Penalty), CLNP 2367, <https://rvt.link/bi>, retrieved on 2024-04-30
Editor:	MKent
Last Updated:	2024/04/03

Mortgages Act, RSO 1990, c M.40

Payment of principal upon default

17 (1)  Despite any agreement to the contrary, where default has been made in the payment of any principal money secured by a mortgage of freehold or leasehold property, the mortgagor or person entitled to make such payment may at any time, upon payment of three months interest on the principal money so in arrear, pay the same, or the mortgagor or person entitled to make such payment may give the mortgagee at least three months notice, in writing, of the intention to make such payment at a time named in the notice, and in the event of making such payment on the day so named is entitled to make the same without any further payment of interest except to the date of payment.

Exception

(2)  If the mortgagor or person entitled to make such payment fails to make the same at the time mentioned in the notice, the mortgagor or person is thereafter entitled to make such payment only on paying the principal money so in arrear and interest thereon to the date of payment together with three months interest in advance.

Saving

(3)  Nothing in this section affects or limits the right of the mortgagee to recover by action or otherwise the principal money so in arrear after default has been made.

Greenpath Capital Partners Inc. v. 1903130 Ontario Ltd., 2024 ONCA 42 (CanLII)

[29] This provision serves a protective purpose: P.A.R.C.E.L. Inc. v. Acquaviva, 2015 ONCA 331, 126 O.R. (3d) 108, at para. 50, citing Reliant Capital Ltd. v. Silverdale Development Corp., 2006 BCCA 226, 270 D.L.R. (4th) 717, leave to appeal refused, [2006] S.C.C.A. No. 265. As held by the British Columbia Court of Appeal in Reliant Capital, at para. 53, Parliament intended for mortgages on real estate to be treated differently than other loans:

Parliament has singled out mortgages on real estate for special treatment, or at least treatment that differs from loans that are not secured on real property. I infer that at least one legislative purpose was to protect the owners of real estate from interest or other charges that would make it impossible for owners to redeem, or to protect their equity. If an owner were already in default of payment under the interest rate charged on monies not in arrears, a still higher rate, or greater charge on the arrears would render foreclosure all but inevitable.

[30] This passage was endorsed by the Supreme Court in Krayzel Corp. v. Equitable Trust Co., 2016 SCC 18, [2016] 1 S.C.R. 273, at paras. 20-21.

[31] In P.A.R.C.E.L., at paras. 53-56, Cronk J.A., writing for the court, outlined the criteria to be applied in determining whether an amount constitutes a violation of s. 8. The criteria may be summarized as follows:

1. The covenant in question must impose a “fine”, “penalty” or “rate of interest”. If it does not, then s. 8(1) is not engaged.

2. The “fine”, “penalty” or “rate of interest” must relate to “any arrears of principal or interest secured by mortgage on real property” (emphasis omitted), whether the arrears arose on default occurring before or after maturity of the relevant debt instrument.

3. The covenant must have the prohibited effect of “increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears”.

4. The arrears of principal or interest must be “secured by mortgage on real property”.