Chapter 15 : Mortgage Law

Question 1

What is an indemnity clause?

Answer 1

An indemnity clause requires an amount equal to three months’ interest to be paid where the lender has had to recover the loan after default. While indemnity clauses are commonly found in many mortgages, they are unenforceable according to the Interest Act.

Question 2

Which statute dealing with interest rates contains provisions allowing a court to intervene where the cost of the loan is excessive and the transaction is harsh and unconscionable?

(1) The Interest Act
(2) The Business Practices and Consumer Protection Act
(3) The Criminal Code
(4) The Mortgage Brokers Act

Answer 2

Which statute dealing with interest rates contains provisions allowing a court to intervene where the cost of the loan is excessive and the transaction is harsh and unconscionable?

Answer:
(2) The Business Practices and Consumer Protection Act

Question 3

What is an agreement for sale and how is it registered?

Answer 3

An agreement for sale is a contract by which the owner of land (vendor) agrees to sell land to another (purchaser). The vendor grants the purchaser immediate possession of the property in exchange for the purchaser’s promise to pay the purchase price by instalments over a period of time. The purchaser’s interest is registered in the Land Title Office as a charge against the vendor’s certificate of title, and the vendor will remain on title as the registered owner until the final payment has been made.

Question 4

Equity of redemption is the mortgagee’s right to repay the mortgage.

(1) True
(2) False

Answer 4

Answer:

(2) False. Equity of redemption is the mortgagor’s right to repay the mortgage.

Question 5

A foreclosure is what type of legal action?

Answer 5

Answer:
Foreclosure is a legal action taken by a mortgagee to realize on its security, by reason of the mortgagor’s default on the mortgage.

Question 6

What is an acceleration clause?

Answer 6

Answer:
An acceleration clause allows the lender, upon the borrower’s default, to demand payment in full of the outstanding balance on the mortgage even if the mortgage has not yet matured.

Question 7

The principle that a borrower cannot be prevented by the terms of the mortgage from eventually redeeming his or her property free from the conditions contained in the mortgage is known as the ___________ ___________ ___________.

Answer 7

The principle that a borrower cannot be prevented by the terms of the mortgage from eventually redeeming his or her property free from the conditions contained in the mortgage is known as the prohibition against clogging.

Question 8

An equitable mortgage is the transfer of equity in property as security for a debt. It is always the first mortgage on title.

(1) True
(2) False

Answer 8

Answer:
(2) False. It is the transfer of equity in property as security for a debt. An equitable mortgage does not always have to be the first mortgage on title - it can be any mortgage registered on title.

Question 9

What is another name for the mortgagee?

Answer 9

Answer:

Another name for the mortgagee is the lender.

Question 10

What is an assumable mortgage?

Answer 10

An assumable mortgage allows a purchaser to assume or take over the responsibilities and liabilities under the mortgage from the vendor.

Question 11

What is a reverse annuity mortgage?

Answer 11

A reverse annuity mortgage occurs when the lender makes periodic payments to the borrower during the loan term. At the end of the term, the borrower will have to repay the balance owing by refinancing or selling the property.

Question 12

A mortgage is a document evidencing a debt owed by the _________ to the __________. Registration of the mortgage in the ________ _______ Office transfers the __________’s interest in land to the _________ as security for repayment of debt.

Answer 12

A mortgage is a document evidencing a debt owed by the mortgagor to the mortgagee. Registration of the mortgage in the Land Title Office transfers the mortgagor’s interest in land to the mortgagee as security for repayment of debt.

Question 13

How does providing a lender with the duplicate certificate of title provide security for a loan?

Answer 13

Answer:
Once the duplicate certificate of title is taken out of the land title office, the registrar will refuse to register certain subsequent dealings with the land in question such as a transfer, mortgage, or long term lease until it is returned to the registrar for cancellation.

Question 14

What is another name for the mortgagor?

Answer 14

Another name for the mortgagor is the borrower.

Question 15

In British Columbia, if a collateral advantage was intended to be a term of the mortgage, it will be ______ if it continues after redemption.

Answer 15

Answer:
In British Columbia, if a collateral advantage was intended to be a term of the mortgage, it will be void if it continues after redemption.

Question 16

British Columbia’s Mortgage Brokers Act contains various prohibitions against theft or fraud related to mortgage transactions.

(1) True
(2) False

Answer 16

Answer:
(2) False.

Although the Mortgage Brokers Act regulates persons who deal in mortgages within the province, it is the Criminal Code that contains various prohibitions against theft or fraud related to mortgage transactions.

Question 17

A __________ refers to a creditor’s acceptance of a third party in place of the debtor so that the third party becomes the debtor and the original debtor is released by the creditor from having to pay off the debt.

Answer 17

Answer:
A novation refers to a creditor’s acceptance of a third party in place of the debtor so that the third party becomes the debtor and the original debtor is released by the creditor from having to pay off the debt.

Question 18

A lender is unable to maintain a direct action against a purchaser who has assumed the mortgage or taken over a vendor’s interest under an agreement for sale.

(1) True
(2) False

Answer 18

(2) False.
Under contract law principles (the doctrine of privity of contract) it would not be possible for a lender to sue a purchaser who assumes a vendor’s mortgage under the covenant to pay contained in the mortgage because the purchaser assuming the mortgage was not a party to the original agreement. However, the Property Law Act allows the lender to sue the purchaser directly to recover the debt where the purchaser is obligated to indemnify the vendor.

Question 19

What is a guarantor?

Answer 19

Answer:

A guarantor is someone who becomes contingently or secondarily liable for another’s debt or performance.

Question 20

What is a vendor take-back mortgage?

Answer 20

A vendor take-back mortgage is a mortgage taken back by the vendor from the purchaser to facilitate a sale, whereby the vendor becomes the mortgagee and the purchaser becomes the mortgagor.