Under the Law of Property Act,1 a mortgagee
is limited to recovery of the property unless the mortgage is high
ratio, insured by CMHC, or granted by a corporation. If one of
these latter circumstances exist, then the mortgagee is entitled to
both recovery of the property and a judgment against the mortgagor
for the deficiency in the event that the amount owed under the
mortgage exceeds the value of the property. The mortgagee can then
take steps to collect on the deficiency judgment in order to make
itself whole.
Unfortunately for mortgagees, the deficiency judgment is an
unsecured debt, and if the mortgagor makes an assignment into
bankruptcy, the mortgagee ends up lumped in with all of the other
unsecured creditors ranking at the bottom of the distribution list
of the bankrupt mortgagor's estate. If bankruptcy occurs,
should the mortgagee give up? Is bankruptcy the end of the
mortgagee's rights to collect? As with most things, timing (in
this case, the timing of
