ORDERS OF THE DAY

Hon. Jim Ernst (Government House Leader): Madam Speaker, would you call the government motion followed by Bill 4?

DEBATE ON GOVERNMENT MOTION

Madam Speaker: To resume debate on the government motion moved by the honourable government House leader, that the Rules, Orders and Forms of Proceeding of the Legislative Assembly of Manitoba be amended by adding the following new rules after 69(3), standing in the name of the honourable member for Thompson.

Mr. Steve Ashton (Opposition House Leader): Madam Speaker, we have reviewed this rules change. The normal procedure in this House for rules changes is that they be by unanimous consent. Normally there is a fairly lengthy consultative process, and normally we would anticipate that the Rules committee would have been called prior to the bringing of a rule.

This is somewhat different in the sense that this is a rule that is being brought in really as a result of the allowances commission. It is really nothing more than changing our rules to establish the category of vice-chairperson of committees, which is a category that is identified in the allowance report for remuneration.

I want to indicate that we do support this in that context. While this does not follow the normal procedures, I do acknowledge the fact that the government House leader did consult with myself and our caucus on this.

I want to indicate, too, that we would hope that we would be able to, perhaps in the fall sitting of the Legislature, be dealing with some more comprehensive rules, reforms. There has been considerable discussion on and off for the last number of years. I do not think that is a secret to anyone. We seem to hit the point where we get consensus on rules changes but then we hit the whole question of timing. Given the politics and the dynamics of this House that often does lead us not to get the unanimous degree of consent we need to proceed with rules changes.

So I want to indicate that we are not by any stretch of the imagination setting any kind of precedent with this particular motion--it is really a one-of-a-kind situation given the allowances commission--but that we in the opposition certainly look forward to some fairly extensive consideration of rules changes that we believe are in the best interests not only of the members of this Legislature but also of the public whom I think are expecting us to look at significant reforms the way we operate this House.

We have not had significant rules changes since the early 1980s. Even in the early 1980s, I would not consider them to be significant to the degree which other Legislatures have moved in terms of rules reform. So we anticipate, we certainly hope, to be able to be discussing some fairly substantive rules changes in the fall, something this incidentally is not really. It is a very minor change, but we do support it.

Mr. Kevin Lamoureux (Inkster): Madam Speaker, I also want to acknowledge, in terms of the government House leader indicating the purpose of this particular rule change, and why it is that he was seeking it.

As the member for Thompson has already indicated, this is in fact an exception, and we are pleased to be able to support what it is that the government is proposing for this particular session. As the member for Thompson has pointed out, there is no doubt a major need of reviewing all the rules that are inside the rule book.

I know in the last seven years I must have sat down with numerous MLAs from the past to talk about the need to change some of the rules. I hope and trust that discussions about the House and the procedures will take place some time in the fall, and I would hope to be included in whatever discussions there might be.

I think we could look at other Legislatures across the country in terms of how they manage House business. I think there are wonderful opportunities. In fact, we had many rules that we were looking at changing. We had a fairly good group of individuals, members from all caucuses, who were sitting down. There seemed to be a consensus on a number of those rule changes. I trust and I hope that the government will act on more substantial, permanent rule changes some time in the fall.

Madam Speaker: Is it the pleasure of the House to adopt the motion?

Some Honourable Members: Agreed.

Madam Speaker: The motion before the House is, it has been moved by the honourable government House Leader (Mr. Ernst),

That the Rules, Orders and Forms of Proceeding of the Legislative Assembly of Manitoba be amended by adding the following new rules after 69(3):

69(4) Each standing or special committee shall elect a permanent Chairperson and a permanent Vice-Chairperson at its first meeting in each Legislature, and in the case of a vacancy of either the Chairperson and/or Vice-Chairperson by reason of the incumbent dying, resigning his or her seat in the Assembly, becoming disqualified from sitting or voting in the Assembly, or resigning from the committee, the committee shall forthwith elect a successor.

69(5) If at any meeting of the committee the Chairperson is not present, the Vice-Chairperson shall act in the place of the Chairperson.

Voice Vote

Madam Speaker: All those in favour, please say yea.

Some Honourable Members: Yea.

Madam Speaker: All those opposed, please say nay.

The motion is accordingly passed.

Hon. Jim Ernst (Government House Leader): Bill 4, Madam Speaker.

SECOND READINGS

Bill 4--The Real Property Amendment Act

Hon. Jim Ernst (Minister of Consumer and Corporate Affairs): I move, seconded by the Minister of Highways and Transportation (Mr. Findlay), that Bill 4, The Real Property Amendment Act; Loi modifiant la Loi sur les biens réels, be now read a second time and referred to a committee of this House.

Motion presented.

Mr. Ernst: Madam Speaker, I am pleased to offer at this time for the benefit of members of the House a brief explanation of the principles of Bill 4.

Many aspects of the law of mortgages currently enforced in Manitoba derive from English law. This includes the current rules that apply when a homeowner sells his or her home to a buyer who assumes an existing mortgage. As the law now stands, the selling homeowner remains responsible under the mortgage and can be sued by the lender if the buyer does not pay the mortgage or otherwise defaults, even if years have passed since the property was sold and transferred to a new owner or, for that matter, to a second new owner.

This result surprises some, but it is explained by the fact that a mortgage has two distinct aspects. Firstly, a mortgage is a promise by a borrower to a lender to repay the amount loaned together with interest. Secondly, a mortgage gives the lender an interest in the mortgaged property as security for that loan. As a result, if the borrower does not repay the loan, the lender can sell or take over ownership of the mortgaged property through sale and foreclosure proceedings.

In light of the foregoing, the fact that a borrower transfers the mortgaged property to a buyer who assumes an existing mortgage has no effect on the borrower's original promise to repay the loan.

Under the current law, the lender can sue the borrower on the promise to repay for as long as the mortgage is outstanding, no matter who owns the mortgaged property. That, in itself, is probably not unfair, but if I loan money to my cousin to buy a car, and later my cousin comes to me and says, I have sold the car to Jean and Jean will repay the loan instead of me, most people would understand, and I expect you to repay it. Mortgages are quite similar.

Lenders loan money to individuals, although they also take security against the land. In making the loan, they qualify the borrower to satisfy themselves that the borrower has the ability to repay the loan. In short, lenders very much rely on what is known as the personal covenant on the part of the original borrower to repay the mortgage loan. The fact is generally everyone loses, including the lender if the lender has to begin foreclosure proceedings.

However, although the existing law of mortgages, when put in those terms, is understandable, there is nonetheless a difficulty with the current situation. There is no mechanism by which a seller who allows a buyer to assume an existing mortgage can require a lender to release him or her from responsibility under the mortgage. As the law currently stands, the seller remains liable under the mortgage, even if the lender approves the assumption, unless the lender expressly releases the seller.

This bill deals with this situation. It enables a person who sells property to obtain a release from the lender under the mortgage in certain circumstances. In doing so, this bill balances the interests of borrowers against those of lenders in the context of modern reality.

This bill has a number of features that I will highlight, the first of which is the scope of the legislation. These proposed amendments to The Real Property Act will apply only to residential mortgages on property in which the borrower lives.

Commercial mortgages are a very different instrument and raise a different set of issues. The question of personal covenants in commercial mortgages are often a subject of detailed negotiation and should remain a matter for the parties between them to determine.

If a mortgage is a residential mortgage, this bill outlines two scenarios under which a seller who sells property to a buyer who assumes an existing mortgage will then be relieved from liability.

The first scenario dealt with in the bill is where a lender actually approves the assumption of the mortgage by the buyer. When the lender gives such written approval, the seller is released from all of his or her obligations under the mortgage. Given that the terms of most residential mortgages contain a due-on-sale clause that requires the approval of the lender to any assumption, this provision should deal with most situations that arise.

The second scenario addressed by the bill is where a seller does not obtain the approval of the lender to the assumption of an existing mortgage at the time the property is sold, either because the lender's approval was not sought, or the lender refused to give it.

The bill creates a mechanism to enable a seller to be released from liability in such a case with two alternative situations that can arise. If the mortgage has an expiry date, the seller will cease to be liable under the mortgage three months after the current term of the mortgage expires, unless the lender serves a written demand on the seller for repayment within that 90-day period.

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If on the other hand, a mortgage is a demand mortgage that has no specific expiry date, the seller will no longer be responsible under the mortgage if the seller gives written notice that he or she has transferred the mortgaged property, unless the lender serves a written demand, again, on the seller for repayment within 90 days after receiving such notice.

The reasoning behind this mechanism is that where a lender has not approved the assumption of a mortgage by a buyer, the lender nonetheless should have an obligation to decide whether or not to continue to hold the seller liable within three months of the end of the mortgage or after the lender receives notice of the transfer in the case of a demand mortgage. This provides certainty to the seller, and if the lender does not serve written notice on the seller of its intention to continue to hold that seller liable under the mortgage within that 90-day period, the seller is automatically released from responsibility under that mortgage by operation of this law.

If, on the other hand, the lender does not wish to give up his rights against the seller, it does not have to do so. It can preserve its position by giving written notice to the seller.

This bill also contains a provision that a lender, when presented with a request to allow a buyer to assume an existing mortgage, cannot unreasonably withhold its approval. If a lender does unreasonably withhold its approval, this bill allows an application to be made to the Court of Queen's Bench for the court's approval instead.

This bill further states that the lender is entitled to request reasonable financial information concerning the buyer who wishes to assume the existing mortgage in order to enable the lender to determine whether it is prepared to accept the buyer's promise in substitution of the seller's.

Finally, this bill amends the promises in Section 77 of The Real Property Act that are implied between the seller and lender and the seller and buyer, where a buyer assumes an existing mortgage. Currently, the implied covenant from the seller to the lender extends only to the payment obligations under the mortgage and not to the other terms, such as the obligation to insure or the obligation to repair the property.

If this provision were not amended, this bill could operate to release a seller from all of his or her obligations under the mortgage without the buyer assuming responsibility for these nonmonetary items. This amendment corrects the potential gap by applying a covenant on the part of the buyer to the lender that the buyer will fulfill all terms and all conditions in the mortgage.

For most people, Madam Speaker, the purchase of a home is their single most important transaction, and any mortgage against it, their largest financial obligation. This bill removes the potential liability that follows the seller where he or she allows a buyer to assume an existing mortgage, or the lender consents to the assumption, which is what most mortgages require in any case.

As I have noted, the bill strikes a balance between the position of sellers on the one hand and the valid interests of lenders on the other. Those who would suggest that the legislation should simply provide that a borrower is released from liability under a mortgage when he or she transfers the mortgaged property ignore the fact that the strength of the promise by a borrower to repay a loan is a crucial consideration taken into account by a lender in lending the money in the first place. To, in effect, force a lender to accept the covenant of a buyer the lender does not know in substitution of the promise of the seller does so being unfair to the lender.

It is important that the legislation is fair to both lenders and borrowers. Legislation that unreasonably restricts the rights of a lender when a mortgage goes into default can lead to unintended consequences. In this situation, the unintended consequence would be a tightening of credit standards by lenders, which would lead them to increasingly reject borrowers whose ability to qualify for a mortgage is minimal. This would clearly be in no one's interest and would run counter to a number of initiatives over the past number of years to make home ownership available to more people, not less.

I look forward, Madam Speaker, to further debate on Bill 4 and to any questions that may arise. Thank you.

Mr. Daryl Reid (Transcona): I move, seconded by the member for Elmwood (Mr. Maloway), that debate be adjourned.

Motion agreed to.

House Business

Hon. Jim Ernst (Government House Leader): Madam Speaker, I move, seconded by the Minister of Justice (Mrs. Vodrey), that Madam Speaker do now leave the Chair and the House resolve itself into a committee to consider of the Supply to be granted to Her Majesty.

Motion agreed to, and the House resolved itself into a committee to consider of the Supply to be granted to Her Majesty, with the honourable member for La Verendrye (Mr. Sveinson) in the Chair for the Department of Highways and Transportation; the honourable member for Sturgeon Creek (Mr. McAlpine) in the Chair for the departments of Northern Affairs and Natural Resources; and the honourable member for St. Norbert (Mr. Laurendeau) in the Chair for the Department of Justice.