Force Majeure you should be aware of when signing up for a mortgage

A Force Majeure is like a get out of jail free card for most companies. This one small statement means that there are some things that may happen (which are outside of the company’s control) which will absolve the company from paying for either damages or any loss that the other party (you) may suffer from this event.

For example, let’s take a company that is sending you a shipment of some goods via a truck. The truck is caught in a thunderstorm and is either severely damaged or destroyed completely. When you may expect that this immediately manifests into a refund, the company comes in and declares it as Force Majeure, which absolves them from giving you anything. This is a very real law that applies to almost every single service in the world. An event that nobody has control over should not be compensated, and it’s easy to understand that.

But what exactly can happen with mortgages that a Force Majeure may be declared? Well, let’s find out about that.

When is a Force Majeure declared?

There are only a couple of times that a Force Majeure may be invoked. These are:

  • Natural disasters
  • Acts of War
  • Acts of terrorism
  • Government regulation
  • Labor disputes
  • Inability to secure goods or services
  • Any event that is reasonably beyond the control of either party

Although many of them are outlined, there could still be cases where a Force Majeure clause is invoked due to the gravity of the situation. And in this case, the pandemic is most definitely one of them.

Where are Force Majeures usually invoked?

The most commonplace to see force majeures has something that is susceptible to the elements. This can be the logistics firm, car dealerships, or any other service that could potentially be disturbed by nature.

However, there is also another industry where the outcome of a “partnership” or an “agreement of cooperation” is outside of either parties’ hands. The clearest example of this are games of chance. But thankfully laws are being created and enforced to keep the population more aware of it.

For example, in Canada alone, the local government makes it mandatory for local casinos to disclose information on force majeure to their clients when they get casino bonus in Canada or anywhere else where the brand has a presence.

This is very common-place for mortgages as well, but it is not as one-sided here.

Force Majeures with mortgages

Mortgages are a bit different from other “services” in the context of a force majeure. With other services, it’s usually the service provider that would invoke the clause, but with mortgages, it’s pretty much only the customer that can invoke it as in this case, the continuation of the partnership is heavily dependent on them. You as a customer are the one making the payments to the mortgage loan, so if there is an issue that was completely out of your control, a force majeure could be invoked to protect what you may have registered as collateral.

All in all, knowing exactly what you can and cannot invoke a force majeure on when signing the mortgage papers is very important.

“Pandemic” is sure to be added as a reason too

The 2020 pandemic taught a lot of banks that not everything is as safe and sound as they would hope it to be. Therefore, it’s extremely likely that banks will start adding “Pandemic” as a part of force majeurs that they could invoke themselves. This includes either increasing interest rates or just the monthly payments themselves.

This is also very important to be aware of.