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Foreclosure risk: location, location, location Add to ...

Rene Hamouth's luxurious West Vancouver dream house is a lender's nightmare.

Perched high on a hill overlooking the Vancouver harbour, the shining glass castle features five bedrooms, an indoor pool and a six-car garage sheltering a Lamborghini, Ferrari and Mercedes-Benz.

Between 2005 and 2007, the Vancouver stock promoter added a series of modern conveniences: five mortgages. The loans carry interest rates ranging between 10 and 15 per cent, but court documents show that most of the owed interest and principal payments have not been paid since 2006.

The overdue payments have left Mr. Hamouth with more than $5-million in mortgage debts and interest costs running at about $2,000 a day. Yet, thanks to a pliant provincial mortgage regime, the financier is still safe at home.

How does he do it? Well, his legal position can be summed up in every real estate agent's mantra: location.

Canadian mortgage default laws are set by provinces and vary so sharply that homeowners in different corners of the country may as well be on different planets.

These differences have made the messy business of collecting on overdue mortgages even more problematic as the sputtering economy and plunging real estate prices push defaults and foreclosures to what legal experts say are near-record levels.

"I've never been this busy," said Conrad Hadubiak, a Regina-based partner with MacPherson Leslie and Tyerman LLP who practices in Saskatchewan and Alberta.

Mr. Hadubiak figures his mortgage default caseload has tripled of late.

In good times, few of his bank and mortgage lender clients paid attention to Canada's patchwork of mortgage laws.

Now that mortgage defaults are soaring and lenders are ramping up efforts to seize residences, Mr. Hadubiak says some of his clients have been "flabbergasted" by the protections borrowers enjoy, particularly in Western Canada.

"[The law]makes it somewhat difficult for lenders, borrowers and lawyers moving from province to province," he said.

Mr. Hamouth's lenders, a group of private investors including Ontario and B.C. businessmen, brokers and former bankers, have seen their tardy borrowers shielded by B.C.'s patient mortgage regime. When one lender initiated foreclosure proceedings last August, the Supreme Court of British Columbia gave Mr. Hamouth more than six months to make good on overdue payments.

When his lenders went to court last week to seize the home, the court gave Mr. Hamouth until late June to sell it.

"The courts in British Columbia go a long way to protect land owners," said Andrew Bury, a partner with Gowling Lafleur Henderson LLP who represents some of Mr. Hamouth's lenders.

"You can wait a year to one-and-a-half years to claim on a mortgage default."

Mr. Hamouth, who invests in startup companies that trade on unconventional stock exchanges such as the over-the-counter market, said in an interview that he plans to repay his overdue mortgage payments within 180 days.

He said he would have made the payments earlier but his family has suffered "devastating losses" from stock market investments.

He recently listed the house for sale at $7-million, a rich asking price in Vancouver's swooning real estate market.

To demonstrate that he has sufficient funds to pay his debts, Mr. Hamouth e-mailed a copy of a German bank statement to demonstrate that he owns €140-million ($234-million) worth of stock.

As for his lenders, he said, "they are really not a big headache."

Mr. Hamouth would have a much bigger headache if his home were in Ontario.

Because of mortgage laws introduced in the late 1970s, Ontario oversees what legal experts describe as one of the most lender-friendly regimes in North America.

Under a process known as power of sale, banks and other mortgage lenders can notify borrowers that they are in default within 15 days of a late payment.

If borrowers fail to repay the overdue debt within six weeks, lenders can begin taking steps to evict borrowers and sell the home, a process that typically takes six months.

The most borrower-friendly province is Saskatchewan. Thanks to legislation that was introduced in the 1930s to halt an epidemic of farm foreclosures during the Depression, the province's laws offer a variety of shields to home and farm owners.

Lenders have the right to foreclose on farmers who cannot pay their mortgages, but Saskatchewan laws prohibit lenders from seizing farm residences or the immediate surrounding land as long as the borrowers and their families live in the home.

Other residential borrowers typically are given more than a year to repay overdue mortgages. If the time runs out, creditors can initiate court proceedings to seize the home.

What makes Saskatchewan unique is a rule that restricts lenders from seeking money from homeowners when lenders sell a house for less than the value of the mortgage. In every other province (with some exceptions in Alberta), lenders have a legal right to force mortgage holders to pay the shortfall.

"This is a very favourable regime for borrowers," Mr. Hadubiak said.

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