One issue in my mortgage enforcement practice that seems to be a continuing source of confusion to many practitioners out there is which, if any, costs and expenses incurred by mortgage lenders can be added to the principle and interest owing under its mortgage?

The well known rule is that fees, penalties and charges that are added on to a mortgage balance by a mortgage lender after default are not enforceable. And the borrower does not need to pay them. This is true, even if the borrower signs a commitment letter and a mortgage document that set out paragraphs identifying these ‘extras’.

However, there are exceptions, including:

• a lender may charge an extra three months’ interest after default if the borrower asks the lender for a discharge statement in contemplation of the borrower repaying the debt AND the borrower does not give the lender 3 months’ notice of its intention to repay
• actual (and reasonable) out of pocket expenses incurred by the lender, as permitted by the mortgage (for example, realty taxes paid, insurance paid, property management fees paid, appraisals paid, etc etc). These expenses should be substantiated by invoices
• reasonable fees and charges as set out in its mortgage or in the commitment that represents the lender’s genuine pre-estimate of costs to be incurred. These amounts are not well defined, and are usually relatively low and insignificant

Bottom line – virtually all of the fees and penalties and charges that most private lenders (and some institutional lenders as well) have added to their discharge statement are unenforceable when they are added to a discharge statement. Next post will look at this issue from the borrower's viewpoint, and examine various options available to a mortgagor when faced with excessive fees and charges on a discharge statement. 

And remember, this blog is intended for information purposes only. It is not legal advice and cannot be relied on as such. Nor is it a substitute for hiring your own legal counsel, who will be an essential member of your power of sale and mortgage default team. And lastly, this blog is just my opinion. I reserve the right to change my mind. And I reserve the right to be wrong. Feel free to call me .... 416.662.9550 to discuss.

Be well and stay healthy

@ Myers@PhmLaw.com

www.phmlaw.com