Legal Blog

Interest Squeeze

Mortgagees attempt to ensure that mortgagors pay all of the mortgagees’ administration costs and, in general, that interest payments are applied solely to the return that mortgagees are to receive for the mortgagors’ use of the mortgagees’ money. Sometimes, however, a mortgagee goes too far. This occurred in NBY Enterprises Inc. v. Duffin, a 2006 decision of the Ontario Superior Court of Justice.

The Mortgage 

The mortgage called for interest at 10.75% increasing to 18% upon default. It provided that the mortgagor had to pay processing fees and administrative charges, and it charged the mortgagor $150 for each missed or late payment and an additional $150 for each NSF cheque.

Section 8 of the Interest Act provides that no penalty may be stipulated on any arrears of principal or interest secured by a mortgage on real property that has the effect of increasing the charge on the arrears beyond the interest rate set out in the mortgage.

Findings 

The trial judge held that:

1.   The increase to 18% on default was a penalty and was not enforceable.

2.   The mortgagor knew about the administrative and processing fees and was liable for them.

3.   The $150 for an NSF cheque was a reasonable sum to cover the mortgagee’s cost that the mortgagor’s default caused; the demand for $150 for each missed or late payment was a penalty and unenforceable.