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Increased Rates of Interest on a Mortgage Default
Section 8 of the Interest
Act (
The latest such decision comes from the British Columbia Supreme Court in Reliant Capital Ltd. v. Silverdale Development Corp. (2005) R.P.R. (4th) 303. In this case a creative structure used to try and capture a higher rate of interest on non-payment of the loan when it became due did not succeed.
The mortgage loan from Reliant Capital provided for an interest rate of 14% per annum for the first 12 months and 20% thereafter. The term of the mortgage was 13 months and 22 days. The structure therefore provided for the interest rate to increase after a certain period of time within the mortgage term, and not after default or maturity (which would have been a clear violation of Section 8 in this circumstance).
Notwithstanding this structure, the court found that the true
purpose or substance was to create a penalty in the form of a higher rate of
interest following non-payment of the loan at maturity. The court followed a number of other cases
that looked at the substance of the mortgage provision, rather than its
form. Creating an “artificial” later
maturity date and increasing the rate before that date was seen as a device
simply to avoid the application of Section 8 of the Interest Act (
June 27, 2005 in Financing | Permalink
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Comments
Nice to see that the little guys win sometimes!
Thanks for the post,
Mark
Posted by: Mark Argentino | Feb 22, 2008 11:57:10 PM
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