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Can a borrower redeem their mortgage under power of sale?

The answer to this question is constantly evolving, with new and conflicting case law addressing specific facts released almost yearly.  The old adage of being able to redeem your mortgage (payout your mortgage) during a power of sale proceeding so long as the mortgagee in possession (being the seller) has not yet entered into a firm or unconditional agreement of purchase and sale with a buyer is no longer clear cut.

Today the way I understand it is that there are two issues once the mortgagee in possession (being the seller/mortgage lender) enters into an agreement of purchase and sale with a potential buyer, and whether or not the borrower/mortgagor can still redeem (payout) his mortgage and keep his property:

  1. Agreement of purchase and sale has conditions that must be satisfied prior to the agreement becoming “firm”; and
  2. The agreement of purchase and sale includes a redemption out clause that the mortgagee has a right to accept redemption from the mortgagor of the property up until the date of closing, without liability to the buyer or seller.  A redemption out clause is a commonly inserted by sellers (mortgagees/lenders in possession conducting the power of sale) into the agreement of purchase and sale, whereby the sellers reserve the right to cancel the agreement of purchase and sale with the buyers at anytime on or prior to closing in order to allow the borrower (mortgagor) the ability to payout the the mortgage debt and save their home from being sold to someone else.
Dealing with the second issue first, the leading case is Logozzo v. TD Bank.  The Court of Appeal held that a redemption out clause does not make an agreement of purchase and sale conditional.  Absent any other conditions, an agreement of purchase and sale is unconditional even if there is a redemption out clause.  A redemption out clause affects the rights of the buyer and the mortgagee (i.e. the lender) selling the property, and formalizes the buyer’s understanding that the mortgagee may agree to accept the mortgagor’s (i.e. the borrower’s) redemption up to and including the date of sale (closing).  Redemption out clauses do not confer a right to the mortgagor to redeem the property as the mortgagor is not a party to the agreement; it only gives a right to the mortgagee (i.e. the lender) at its sole and absolute discretion to grant this right and terminate the agreement of purchase and sale with the buyer.
With respect to the first issue, whether an agreement is considered conditional in the power of sale context depends on the nature of the conditions.  In Logozzo v. TD Bank, the Court held that conditions respecting title in the usual agreement of purchase and sale are just that — a mere matter of title and, therefore, one of the usual terms found in an agreement of purchase and sale (e.g. providing clear and marketable title) — with the result that the agreement is an unconditional contract of sale.

There are a line of cases that support the proposition that pending the satisfaction of the conditions in a conditional agreement, the mortgagor’s right to redeem is still extant. See: Nalisa Investment Ltd. v. National Bank of Canada, [1980] O.J. No. 643 (Ont. S.C.); Canada Permanent Trust Co. v. Rieckenberg, [1983] O.J. No. 930 (Ont. Dist. Ct.); Miranda v. Wong, [1986] O.J. No. 231 (Ont. H.C.J.); Weiss v. Standard Trust Co. (Ont. Gen. Div.), unreported August 5, 1993, Justice Wilson; National Trust Co. v. Saad (1997), 1997 CanLII 12134 (ON SC), 33 O.R. (3d) 419 (Ont. Gen. Div.).  The conditions relied on include a redemption out clause, which conflicts with the Court of Appeal in Logozzo v. TD Bank.

There is also a line of cases that support the proposition that the mortgagor loses his or her right to redeem with the signing of even a conditional agreement of purchase and sale. See: DBM Capital Corp. v. Marino, [2002] O.J. No. 5723 (S.C.J.), aff’d for different reasons[2003] O.J. NO. 4112 (C.A.); Waring v. London & Manchester Assurance Co. (1934), [1935] Ch. 310 (Eng. Ch. Div.).
It must also be noted that a Court may exercise its discretion and stay (halt) a power of sale proceeding to permit a mortgagor to exercise his or her equity of redemption.  The Courts have been reluctant to exercise its discretionary power absent fraud or unclean hands by the mortgagee, and proof that the mortgagor has the funds to redeem the mortgage.

So if I can summarize:

1)  An unconditional sale without a mortgagee’s standard redemption out clause, will most likely leave a mortgagor (borrower) without a fighting chance.
2)  An unconditional sale with a mortgagee’s standard redemption out clause, will give a mortgagor the chance to beg the mortgagee to agree to rescind the Agreement of Purchase and Sale, and allow the mortgagor to redeem but doesn’t have to.
3)  A conditional sale that remains conditional for reasons that are not conventional to providing clear and marketable title, and are not just privy to the mortgagee and purchaser (such as depending on a third party), could allow a mortgagor to fight for a redemption so long as they can demonstrate their ability to payout the mortgage immediately.

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