This article illustrates the imbalance of power between the mortgagor and mortgagee, which is particularly apparent for individual mortgagors. Prepayment and due on sale provisions are standard mortgage terms that contribute to this imbalance. Although these clauses purport to operate separately, in reality, both are frequently triggered by the sale of a property; the law of contract suggests that these provisions should not be enforceable. Relevant legislation is lacking in this area and should be reformed to provide more effective consumer protection while acknowledging that banks operate with the goal of maximizing business. A reasonable compromise would involve basing the transferability of mortgages on objective criteria such as the size of the down payment provided by the buyer, rather than leaving it purely to the discretion of the lender.
This article is helpful for readers seeking to learn more about:
mortgages, mortgage penalties, prepayment clause, due on sale clause, penalty clauses, financial services, class actions, borrowing rates, enforceability of clauses, consumer protection, unconscionability
Topics in this article include:
real estate, consumer protection, imbalance in power, legislative protection, economics, contract law, equity, common law
Authorities cited in this article include:
Interest Act RSC 1985, c I-15
Land Registration Reform Act RSO 1990, c L4
Mortgages Act RSO 1990, c M40
Peter Spiro , "Canadian Mortgage Law and Prepayment Penalties", (2015) 5:4 online: UWO J Leg Stud 4 <https://ir.lib.uwo.ca/uwojls/vol5/iss4/4>.
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