Ch.23 The Law of Mortgages Flashcards
Mortgage
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
Charge
- secured claim (similar to mortgage) registered against real property
Under the Land Titles System
Does not transfer property to the creditor
Remedies available to mortgagee and procedure followed to realize on debt vary across provinces
Legislation of each jurisdiction must be consulted for applicable law
Land not only form of property that may be used as security for debt
Legal mortgage
- 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
Equitable mortgage
- mortgage subsequent to the first or legal mortgage - a mortgage of the mortgagor’s equity
Second or subsequent mortgage
Equity of redemption
- equitable right of a mortgagor to acquire title to the mortgaged property by payment of the debt secured by the mortgage
If parcel of land has more than one mortgage, priority becomes important
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
Mortgagor Rights and Duties:
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
Mortgage is contractual in nature:
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
Contractual Provisions
Prepayment
Discharge
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
Assignment
Mortgagee may assign
Must be done in accordance
with the legislation
Sale of Mortgaged Property
Mortgagor free to sell or dispose of equity of redemption in mortgaged land
Still liable even after sale
Mortgagee often requires an “assumption”
Acceleration clause
- 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
If mortgagee cannot correct payment default, other options available:
- Power of sale
- Foreclosure
- Judicial sale
Clause that allows mortgagee to sell or lease if mortgagor in default
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
Foreclosure
Alternative to power of sale (except in Quebec):
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
Mortgagee may apply to court for possession, payment, and sale of the property
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
Possession When default occurs:
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
