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What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?
Real estate financing is typically provided by financial institutions such as banks, insurers, trust companies, pension funds, credit unions and other entities that lend money in the ordinary course of business. These financial institutions are regulated under federal and provincial legislation including, for example, mortgage brokerage legislation, which in some jurisdictions sets out registration or licensing requirements for those who lend money on the security of real estate. Some jurisdictions also set out statutory registration requirements for foreign financial institutions.
What are the most common structures used to secure real estate financing and how are these security interests perfected?
In Canada, real estate financing is most commonly secured by registering a mortgage and a general assignment of rents and leases, or an immovable hypothec in Quebec, against title to the real property in the applicable land registry office, as well as notice of a security interest against the borrower in the applicable personal property registry office pursuant to a general security agreement or movable hypothec in Quebec. These real and personal property security interests are generally created by execution of the underlying agreements and perfected by registration in the applicable registers.
What covenants are typically made in financing agreements?
Financing agreements typically impose:
- positive covenants (eg, to pay principal and interest, obtain and maintain insurance and pay taxes and utilities);
- negative covenants (eg, not to take on new debts, sell shares or assets, or grant guarantees); and
- financial covenants (eg, to maintain certain financial ratios and limit certain capital expenditures).
The package of covenants required by a mortgage lender is proportionate to the borrower’s risk profile.
Enforcement of security
How are security interests enforced in the event of default?
In the event of default, mortgage lenders in most jurisdictions have recourse to some or all of the following remedies for enforcing their security interests over real property:
- taking possession of the property;
- exercising a private power of sale;
- instituting judicial sale proceedings; or
- foreclosing on the property in satisfaction of the debt.
Some of these remedies may be exercised concurrently and consecutively, but are subject to certain substantive and procedural requirements prescribed by law.
What is the typical timeframe for the enforcement of security?
The timeline for enforcement of real property security can vary widely from jurisdiction to jurisdiction. However, in all jurisdictions the lender is obliged to give reasonable notice before making a demand for payment and, in most circumstances, will be required to send notices under federal bankruptcy and insolvency legislation. The borrower then has a reasonable period of time to remedy the event of default. If the borrower fails to remedy the event of default, the lender will generally have one or more of the enforcement options discussed above.
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