Chapter 7 - Intro To Mortgage Law Flashcards
How does providing a lender with the duplicate certificate of title provide security?
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 transfer, mortgage, or long term lease until it is returned to the registrar for cancellation.
An Equitable mortgage
It is 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.
A foreclosure is what type of action?
Foreclosure is a legal action taken by a mortgagee to realize on it’s security, by reason of the mortgagors default on the mortgage.
The principle that a borrower cannot be prevented by the terms of the mortgage from eventually redeeming his property free from the conditions contained in the mortgage is known as the Prohibition Against Clogging
A mortgage is a document evidencing a debt owed by the MORTGAGOR to the MORTGAGEE.
A Mortgage is a CONTRACT. Has terms and conditions, like Clauses.
— if something in the contract/mortgage is BLOCKING your ability to REDEEM the EQUITY OF REDEMPTION is VOID.
Registration in the LAND TITLE OFFICE transfers the MORTGAGOR (land owners) interest in the land to the MORTGAGEE (bank).
In BC, if a collateral advantage was intended to be a term of the mortgage, it will be VOID if it continues after redemption.
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.
What is an indemnity clause?
An INDEMNITY CLAUSE requires an amount equal to 3 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.
What is a reverse annuity mortgage?
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.
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 because the purchaser assuming the mortgage was not a party to the original agreement.
However, the Property Law Act allow ms lender to sue the purchaser directly to recover the debt where the purchaser is obligated to indemnify the vendor.
What is an acceleration clause?
Express Term in mortgage.
An acceleration clause allows the lender, upon the borrowers default, to demand payment in full of the outstanding balance on the mortgage even if the mortgage has not yet matured.
Although the Mortgage Broker Act regulates persons who deal in mortgages within the province, it is the Criminal Code that contains various sections against theft and fraud related to mortgage transactions
What is vendor take back mortgage?
vendor take back mortgage is a mortgage taken back from the purchaser to facilitate a sale, whereby the vendor becomes the mortgagee and the purchaser the MORTGAGOR.
A
What is an assumable mortgage?
Assumable mortgage allows a purchaser to assume or take over the responsibilities and liabilities under the mortgage from the vendor.
What is another name for the mortgagee?
Another name for the mortgagee is LENDER.
Equity of redemption is a MORTGAGORS right to repay the mortgage.
After Borrower has given a mortgage of real property, the Borrowers remaining interest is known as:
THE EQUITY OF REDEMPTION
After the contractual right (Ex. TERM OF 5 Years), Term is shorter than Amortization (25years). You still have the Equitable RIGHT to REDEEM. REMEMBER THE CONTRACT IS FOR THE TERM LENGTH.
After 1st LEGAL MORTGAGE, all other mortgages are known as EQUITABLE MORTGAGE
— you can pay off and go to another lender because they are giving better deal.
What is a guarantor?
A guarantor is someone who becomes contingently or secondarily liable for another’s debt or performance.
What is another name for the MORTGAGOR?
Borrower
What is an agreement for sale and how it is registered?
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 purchasers 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, as the registered owner until the final payment is made.
Which statute dealing with interest rates contains provisions allowing 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 Broker Act
) the Business Practices and Consumer Protection Act
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What is a Mortgage?
It is a security for the loan. It is evidence of the loan.
Loan = Debt
Mortgage = Contract = Security. This creates an interest in land.
A mortgage is a security for the loan that the lender gives to the borrower. It is evidence of a loan
The Borrower gives an “interest in land” to the lender.
When paid off Borrower can request a redemption from lender. Ex. Take back interest in land.
Lenders who hold a mortgage as a charge on otherwise clear title to a borrowers land have:
— AN INTEREST IN LAND CREATED BY CONTRACT
If Mortgage Obligation repaid
Mortgage interest in land is “discharged”
Do we have to register Mortgage on title
No. You can have unregistered mortgage. It’s better to register to show the Lender has a Mortgage (loan)
However, Lender is the “registered owner” i.e interest in land (charge)
Registration of Mortgages
Not guaranteed under BC Registration system (Torrens). Registered mortgages does not extend principle of indefeasibility
Only indicates Rebuttable presumption mortgage is valid.
Priorities -When Registered - Who is Protected First
Remember Mortgage does not have to Registered to be Effective.
Mortgages take priority over all subsequent charges and unregistered interests in property except for:
ALL CHARGES BELOW TAKE PRIORITY OVER MORTGAGE.
1/ builders lien Act
2/ Employment Standard Act - lien for wages owed by employer
3/ Unpaid Municipal Property taxes or other Municipal charges
4/ unpaid Strata Fees
5/ Claims under Federal Income Tax, CPP, EI, Excise Tax Act
Who provides the Loan to buy the house
Mortgagee = Lender
2 EE’s Lender same as Mortgagee
My Personal Covenant
My personal promise made by mortgagor (borrower) to pay the principle and interest to the mortgagee. Lender
If you default, the Lender can pursue whatever remedy is advantageous to them.
Other Covenants made by Mortgagor (Borrower)
1/ pay all property taxes
2/ Keep premises in reasonable repair and well maintained
3/ Pay debt and interest as scheduked in the contract
4/ Provision to insure the property to replacement value or such lesser amount as the mortgagee determines.
Express Terms of Contract
Written in the contract Clauses Repayment Acceleration Omnibus Insurance Advance Gurantor Due in Sale Portability Charges in Priority
Clauses required before lender gives money.
Implied Clauses of the Contract
Implied by Statute or case law; not in the actual contract.
What is Advance Clause?
1/ money given in stages like builder loans. 30% finished, you get funds advanced
2/ gives lender complete discretion in deciding whether to advance some or all of the money secured by mortgage.
Gurantor Clause
1/ Used to create separate personal covenant of third party (guarantor) in addition to tge borrowers personal covenant
2/ gives lender additinal security
3/ on default lender can pursue guarantor for mortgage balance payment or deficuency when sold.
4/ Why? When borrowers income or assets are insufficient on their own to meet the lenders or mortgage insurer’s birrowing guidelines
4/
Portability Clause
Borrowers can take their current mortgage to na new property and can maintain his current favourable rate.
Blended rate - if additional money is needed by the borrower, the “old” loan amount at its rate of interest is added to the “new” loan amount at current interest rates.
If additional money is needed then the borrower may have to requalify (possibly under stricter lending rules).
Implied Terms in Mortgages
1/ the Prohibition Against Clogging - basically this means if you paid off the mortgage the Lender cannot stop you from DISCHARGING the mortgage from the Land Title Office
2/ stipulations for Collateral Advantage - its a term that gives the lender additional advantage on the property - i.e the property is a gas station - lender wants some of its products to be sold at the gas station and wants Borrower to buyfrom lender. lender tries to get extra benefit over and above interest and principle pmts.
3/ Principle of Good Faith and the Duty of Honest Performance
- parties to contract are under a duty to act honestly in the performance of their contractual obligations. In
Clogging Examples
1/ Options to purchase taken by lender (rent to own) would block borrower to get his interest in land after fulfilling all the requirements
2/ changes to nature of mortgage which makes it impossible or difficult to redeem
3/ Postponement/ delay/ of right to redeem which is oppresive or unconscionable
Any mortgage or mortgage term thst CLOGS the owners right to redeem is VOID.
Quitclaim Deed
Terminates a borrower’s interest in a property in favour of a lender. Gives the keys to the bank and walks away.
Not allowed in BC. The borrower gives the keys to the lender and says you can have the house. Cant do this in BC. Because you the borrower has to exit the contract properly and be given the right of Redemption.
Types of mortgages
Remember it is the MORTGAGOR THAT GRANTS THE MORTGAGE.
1st Mortgage = or same as Legal Mortgage
— transfers legal Title to the property from the OWNER to LENDER.
— Usually the largest amount of the property’s loan
Contractual Right of Redemption - borrower has right to redeem title by repaying the loan. This is called Equity Right of Redemption
YOU HAVE THE RIGHT TO GET YOUR PROPERTY BACK AFTER PAID OFF MORTGAGE.
THIS THE EQUITY RIGHT OF REDEMPTION
Equitable Mortgages
2nd or 3rd or 4th
Will be smaller amount and higher interest rate
Mortgage of Equity of Redemption
Property Value 500k less mtg 400k equals 100k equity. You can get 2nd mtg as equity of redemption.
Agreements For Sale - rent to own. Option to buy to the LENDER. Paying in installments
3/ Disguising a Mtg as as a Transfer. - make look like a loan and not allow you to equity of redemption.
4/ Duplicate Certificate - created from land title office. Held as security. LTO will not allow any registrations when Duplicate Title is out.
5/ Present Equitable Mtg — an agreement to grant a mortgage in the future
Contractual Clauses
Up to lender to choose to remedy it feels is the most advantageous in the circumstances
Acceleration Clause - maturity date of the loan is pushed forward and lender demands to be paid out in full (no notice need to be given by Lender)
Lender’s Remedy Clause - this gives lender complete discretion to choose most suitable remedy
Mortgage in Possession Clause - lender can take possession of a property to prevent additional losses ( due to decline of property or damage)
Omnibus clause - in default of payment the lender will make the payment and it will be added to the loan.
Mortgage Types
Reverse Annuity Mortgage
- lender makes payment to the borrower (retiree home owners CHIP MTG)
- Alternative to 2nd Mtg (mortgage of equity redemption)
Interim Blanket Mortgage
- mtg placed on the whole development and can be released from each lot as they are purchased
Vendor Take Back Mtg
- maybe used when tge purchaser cannot obtain a loan through the bank because of poor credit score or wanting better terms
Bridge Funancing
- short term loan or mortgage while long term financing is being pursued
- 2 properties - bought new house but not sold other property. Or while lender scrutinizes borrower.
Federal Legislation - Criminal Code Act What rate would be considered Criminal?
Any loan OVER 60%
61% is criminal.
Interest Act (Federal Legislation). DOES NOT APPLY TO CORPORATIONS
No rate mentioned in mortgage than interest will be 5%
A borrower has right to prepay all outstanding debt after 5 years from initiation with 3 month penalty
No limit specified for mortgage rates
For blended payments - mortgage rate must be stated whether calculated “yearly” or “semi-annually” not in advance.
The interest rate on arrears (late pmts) under a mortgage may not exceed the rate payable on the principal monies not in arrears.
If the document does not mention interest, no interest can be charged
If document requires interest to be paid with no set amount, the rate allowed be law is 5%.
Under Interest Act Section 10.
53 53 53 53
5 years from initiation of mortgage and pay 3 months penalty.
A borrower has the right to prepay ALL of the outstanding debt at any time after 5 years from initiation if the mortgage with a 3 month penalty.
- does not apply to corporations - only applies to mortgages on property not owed by a corporation.
Remember after 5 years and 3 months penalty
Not apply to CORPORATIONS but PARTNERSHIPS CAN PAYOFF 53. - they pay full amount if interest for remaining term
Provincial Legislation
Business Practices Consumer Protection Act
The court can re-open a mortgage transaction under BPCPA if it believes the interest rate is harsh or unconscionable.
Allows borrower the right to ATTACK the rate of interest.
Environmental Management Act (EMA)
The lender is NOT liable if site is contaminated if they:
1/ participate in financial matters (just give loan)
2/ impose requirements on a person to inspect the site (due dilligence)
3/ insist on environmental conditions with a security arrangement
EMA
Lender is liable when
1/ excercise control over or impose requirements which cause a site to become contaminated. Own GAS station.
2/ LENDER becomes a registered owner of a contaminated property (i.e. foreclosure)
IF LENDER ONLY HAD A FINANCIAL CONTRIBUTION TO THE MORTGAGE TRANSACTIONS THEY NOT LIABKD FIR CONTAMINATION
Can you sell a mortgage.
Lender can Sell But borrower can’t
Yes, called an Assignment of a Mortgage to new Lender
1/ transfer over to another.
2/ the lender can transfer its interest in the land and its right to receive the money without consent of borrower.
3/ unless the lender fraudulently misrepresents the balance if the mtg, the lender will not be liable to the assignee if the new borrower fails to repay the debt.
Due on Sale Clause
Allows the lender to collect on all amounts owing under the mortgage, including prepayment penalties, UPON SALE OF PROPERTY. NOTING STOPS BORROWER TO SELL the property.
The lender requires FULL repayment if it’s interest in land is sold.
