Costs in Foreclosure and Sale Actions

Whether you are a defendant or a lender in a foreclosure action, you should be aware that the court limits the costs that can be awarded against borrowers who are unable to pay their mortgage. It doesn't mean that costs cannot be ordered. It just means that they has must be approved by the court and the court will often limit the costs in the early part of a mortgage action. These same rules also apply to very similar court proceedings to cancel an "Agreement for Sale". Read on if this applies to you.

Solicitor and Client Costs

Almost all mortgages have a clause in them saying that the borrower will pay the lender's legal costs if the mortgage is in default. It will say that they must be paid on a "solicitor and client basis" or a "solicitor and his own client basis". The first of these phrases means the full legal bill incurred by the lender, but subject to the review of the court. The court might say that a certain step was unnecessary or the charges are too high and reduce the costs somewhat, but in most cases it will cover the entire legal bill incurred by the lender. The second phrase attempts to be even broader to avoid the legal bill being reduced. There is a more technical explanation but this should serve the purpose.

Party and Party Costs

In Saskatchewan, there is a set of rules made by the judges called the "Rules of Court". It is long and complex and sets out the rules about court proceedings. It contains a table putting a dollar amount on costs to be awarded against the other side. These are called "party and party costs". If the court awards costs, then in normal cases, you only get the amount set out in the table for each step taken in the proceedings. It will amount to only a relatively small fraction of the total legal bill incurred. It is intended to contribute to the legal bill paid by the winning party ... but it is nowhere near full reimbursement. Except in some rare cases, or where the agreement specifies that costs will be paid on a solicitor and client basis, this is all that the person gets for costs. That's why the mortgage contract has words in it to expand on the costs the lender can ask for if they have to enforce their mortgage. Commercial leases are another example that will contain this type of clause.

Costs in Foreclosures

Saskatchewan legislation ... The Limitation of Civil Rights Act and The Land Contracts Actions Act, 2018 ... were originally passed many decades ago to protect people who had difficulty paying on their mortgage. The combined effect for these purposes is:

  • Normally, if someone wants to sue, their lawyer will prepare a "statement of claim" and have it issued (stamped) at the court house. That starts the court action. However, the above legislation is aimed at giving the borrower on a mortgage a chance to solve their problem before a statement of claim is issued. It therefore makes the lender apply for permission from the court before the statement of claim can be issued.
  • The first step in a foreclosure or mortgage action is to apply for "leave" or "permission" to commence a court action/issue a statement of claim. It means the lender's lawyer must serve an initial set of documents on the borrower/owner of a property and also a government department (Provincial Mediation Board). The documents will include information about the mortgage default as well as a document that sets out the date, time and location for the court hearing. The court date must be at least 60 days after these parties are served. The borrower can come to court and ask for some additional time to solve their problem before the lender can issue the claim. Depending on the circumstances, the judge has the ability to help the borrower by giving some time. The maximum time the judge can collectively grant is 8 months but usually adjournments are only about 1 month or so. The judge cannot re-write the loan terms. On this stage of the proceedings, the court cannot make rulings about the mortgage either. They can only grant time, require information to be exchanged and at some point they will typically be obliged to let the bank proceed. Every case is different.
  • There are several court decisions which say that normally, unless the borrower is a repeat defaulter or there has been some objectionable conduct warranting the costs, the court should not make the borrower pay for solicitor and client costs up to and including this stage of the proceedings, regardless of what the mortgage document might say. "Repeat defaulter" doesn't mean someone has missed 3 payments. It means someone went through this process already last year, reinstated, and then defaulted again so that the lender had to go through all of this expense again. Even then, the cases say if someone is a repeat defaulter, the court should only award a fixed amount such as $500.00 or $800.00 instead of the lender's full legal costs to this point. That's a figure from a while ago so it might go up somewhat but you get the idea.
  • Most banks and their lawyers are well aware of the multitude of cases that say this. Some of them ask for the costs anyway. My thinking is that if they feel the court decisions are wrong, they should appeal it to the Saskatchewan Court of Appeal. No one has to my knowledge. Maybe no one wants to run the risk of losing. I've seen lenders make the argument for costs frequently when I am in court when from what I hear, they don't seem to be entitled. Not every judge did this type of work before they were appointed so the issue isn't always clear to them. It makes me want to stand up and object but it's not my case and I'm not entitled to to so. I've also seen the bank try to collect them when a house under foreclosure is being sold when there is no court order granting the costs. Many lawyers may not realize the issue ... just as I don't practise family law and may not pick up on something there. That's why I'm writing this article.
  • Don't take this to mean that all lenders are out to get something that they aren't entitled to. That's not the case. I've acted for many lenders and they abide by the court's rulings. However, for reasons not know to me, I've also seen some try to collect costs when I don't think they should. The key word is "some". Also to be fair to lenders ... they have lent their money in good faith that they would be paid. It's difficult for them to understand why they have to pay and write off what may amount to several thousands of dollars in legal costs for a default situation that they didn't cause.

When do Full Costs Start to Run?

If the borrower is a corporation, there will likely be a clause in the mortgage saying that because the borrower is incorporated, they waive all of this protection. The first 2 steps above won't apply and the protection about costs won't apply. The lender can ask for costs but they have to submit their bill for the judge to see and rule on it. The final say on the amount is with the judge.

For pretty much everyone else, the full legal costs (but still limited) only start to run after the court has given permission to issue a statement of claim ... not before ... subject to the exception I've described above about repeat defaulters or other special circumstances. Being in default by itself is not a special circumstance.

How to You Argue this if You are Representing Yourself

If a borrower at the first stage of the court action (leave to commence) and this issue comes up, don't be afraid to speak up. If the lender is asking for costs, tell the judge that you understand that at this point of the proceedings, costs are usually not awarded unless the lender has satisfied the court that you are a repeat defaulter or you have committed an unusual act warranting costs against you It's for the lender to prove ... not for you to disprove. There are cases such as Credit Union v. Black and Credit Union v. Hogg that the judges will be familiar with.

If the lender's lawyer asks for the court to put the issue off and give them permission to argue it later at the "order nisi" stage of the action, don't agree. Section 3(11) of The Land Contracts Actions Act only gives the judge hearing the leave application the power to decide on costs ... not what would probably be a different judge at the "order nisi" stage. The lender's lawyer knows they will probably lose and instead is trying to keep the door open in case you sell the house and want to pay them off. It will then be impractical and expensive to bring the issue before the court. If you are going to lose the costs argument now, you'll lose then so there is no benefit in the borrower putting it off. The odds are high that you will win.

What if it Never Went to Court

Only the court can authorize the legal bill to be added to your mortgage. There is a case called Canada Trust v. Murray by Mr. Justice Grostsky that says so. If the court didn't order and approve the costs, the bank isn't entitled to add them to their account. If you pay up your arrears and the bank adds the costs to your mortgage balance or insists on collecting them, you can ask the court to have it reversed. There are cases where the court has done so and ordered costs against the bank. My advise though is don't waste everyone's time over a small amount. Make sure it is a real issue. And ... if you are a repeat defaulter ... expect the bank to defend itself and raise it. My point is to be respectful and stand up for yourself when it is justified, but don't be a user. Remember that the lender is usually the innocent party when a mortgage is in default. They aren't the "bad guy" either.

2017 Court Decisions Limiting Solicitor and Client Costs

In the fall of 2017, there was a series of court decisions that effectively further diluted the lender's ability to recover legal costs. Whether it is fair is a matter of opinion, but the court added a new rule or limitation to the extent that "solicitor and client" costs can be collected for the stages of the court action beginning with the statement of claim and afterwards. The effect has been to dramatically reduce the amount the lender is able to recover from the legal costs the lender had to pay to enforce their mortgage. From a borrower's perspective, this may be seen as good news. From a lender's perspective, and speaking from decades of experience, the fact is that the majority of loans in foreclosure or judicial sale proceedings involve the lender taking a significant loss ... and sometimes a devastating loss. These losses can become even greater when the lender must spend very large sums of money to enforce payment but have to write off a substantial part of it. For banks, that may be perhaps seen as a cost of doing business and no one particularly feels sorry for the major banks. However, there are many smaller lenders or private lenders whose life savings can take a significant hit when a mortgage is not being paid. No doubt a mortgage in default can be very stressful for them and result in a large financial setback.

Notice:The information on this website is general in nature only. It relates to Saskatchewan, Canada and may not be applicable in your jurisdiction. It does not constitute legal advice to you and no solicitor client relationship will be established. A conflict check would also be required before our firm can act for someone. You should seek specific legal advice regarding your circumstances from a lawyer entitled to practise law in your jurisdiction.
* Richard Carlson Legal Prof. Corp. | Friday, Jun 21 2024 16:13 pm UTC1 (-6 hrs for Sask)