Ch.23 The Law of Mortgages

Question 1

Mortgage

Answer 1

agreement between debtor and creditor in which title to property of debtor is transferred to creditor as security for payment of debt

Five distinct characteristics
1. Transfer title of property to mortgagee
2. Mortgagor retains possession until debt is paid
3. Proviso that entitles mortgagor to reconveyance
4. Mortgagor obliged to protect and maintain property while debt unpaid
5. Terms that permit mortgagee to terminate mortgagor’s rights if they default payment

Question 2

Charge

Answer 2

• secured claim (similar to mortgage) registered against real property

Under the Land Titles System

Does not transfer property to the creditor

Question 3

Remedies available to mortgagee and procedure followed to realize on debt vary across provinces

Answer 3

Legislation of each jurisdiction must be consulted for applicable law

Land not only form of property that may be used as security for debt

Question 4

Legal mortgage

Answer 4

• first mortgage of real property whereby owner of land in fee simple transfers title of the property pledged as security to creditor

On condition that the title will be re-conveyed when the debt is paid

Only the first mortgage may be the legal mortgage

Question 5

Equitable mortgage

Answer 5

• mortgage subsequent to the first or legal mortgage - a mortgage of the mortgagor’s equity

Second or subsequent mortgage

Question 6

Equity of redemption

Answer 6

• equitable right of a mortgagor to acquire title to the mortgaged property by payment of the debt secured by the mortgage

Question 7

If parcel of land has more than one mortgage, priority becomes important

Answer 7

Only first mortgage is legal

All subsequent mortgages merely mortgages of mortgagor’s equity

Order of priority established by time of registration at land registry office

Exception: if bona fide mortgagee has notice of prior unregistered mortgage

Mortgagee must search title to determine status of mortgage

Question 8

Mortgagor Rights and Duties:

Answer 8

Entitled to remain in possession of mortgaged property during term of mortgage

Comply with terms and conditions

If mortgagor defaults, mortgagee entitled to take action for possession or payment

Demand a re-conveyance of title or discharge of mortgage when mortgage paid in full

Question 9

Mortgage is contractual in nature:

Answer 9

Parties free to negotiate terms and conditions

Four important covenants on part of mortgagor:
1. Pay mortgage in accordance with terms
2. Pay taxes or other municipal assessments
3. Insure the premises
4. Not to commit waste and to repair property if any damage should occur

Question 10

Contractual Provisions

Answer 10

Prepayment

Question 11

Discharge

Answer 11

If full payment made, entitled to discharge

• Registry system - a particular instrument used acts as a statutory reconveyance of title
• Land Titles system - cessation of a charge

Question 12

Assignment

Answer 12

Mortgagee may assign

Must be done in accordance
with the legislation

Question 13

Sale of Mortgaged Property

Answer 13

Mortgagor free to sell or dispose of equity of redemption in mortgaged land

Still liable even after sale

Mortgagee often requires an “assumption”

Question 14

Acceleration clause

Answer 14

• clause in a debt instrument (e.g. mortgage) that requires payment of the balance of the debt on the happening of a specific event, such as default on an installment plan

Mortgagee calls for immediate payment of full amount owing

Occurs if mortgagor default in payment or causes breach of covenant

Legislation allows arrears payments or correct breach - put mortgage in good standing again

Question 15

If mortgagee cannot correct payment default, other options available:

Answer 15

1. Power of sale
2. Foreclosure
3. Judicial sale

Question 16

Clause that allows mortgagee to sell or lease if mortgagor in default

Answer 16

Must provide written notice to mortgagor and let certain period of time to elapse

Allow mortgagor to put mortgage into good standing

If not put into good standing then mortgagee free to sell

Surplus from sale belongs to mortgagor but mortgagor may also be liable for deficiency

Also get an order for possession

Question 17

Foreclosure
Alternative to power of sale (except in Quebec):

Answer 17

Court issues an order

Extinguishes all rights of the mortgagor in the property

Mortgagor has right to redeem, during a period of time given by the court

Not final since mortgagor can apply to have the order set aside

Question 18

Mortgagee may apply to court for possession, payment, and sale of the property

Answer 18

Property sold and proceeds distributed
- First: payment of mortgage
- Second: Payment of claims of subsequent encumbrances
- Third: surplus to mortgagor

Usually sold by tender or public auction

Question 19

Possession When default occurs:

Answer 19

Mortgagee has right to possession of the mortgaged premises

If leased, mortgagee may displace the lessor and collect rents payable by tenants
- Rents must be applied to payment of mortgage