Chapter 7 - Intro To Mortgage Law Flashcards
1
Q
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.
A
2
Q
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
3
Q
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.
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4
Q
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
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5
Q
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).
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6
Q
In BC, if a collateral advantage was intended to be a term of the mortgage, it will be VOID if it continues after redemption.
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7
Q
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.
A
8
Q
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.
A
9
Q
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.
A
10
Q
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.
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11
Q
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.
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12
Q
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
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13
Q
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
A
14
Q
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.
A
15
Q
What is another name for the mortgagee?
Another name for the mortgagee is LENDER.
A
16
Q
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.
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17
Q
What is a guarantor?
A guarantor is someone who becomes contingently or secondarily liable for another’s debt or performance.
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18
Q
What is another name for the MORTGAGOR?
Borrower
A
19
Q
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.
A
20
Q
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
A
2
21
Q
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.
A
22
Q
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”
A
23
Q
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)
A
24
Q
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.
A
25
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
26
Who provides the Loan to buy the house
Mortgagee = Lender
2 EE’s Lender same as Mortgagee
27
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.
28
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.
29
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.
30
Implied Clauses of the Contract
Implied by Statute or case law; not in the actual contract.
31
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.
32
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/
33
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).
34
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
35
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.
36
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.
37
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
38
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
39
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.
40
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.
41
Federal Legislation - Criminal Code Act What rate would be considered Criminal?
Any loan OVER 60%
61% is criminal.
42
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%.
43
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
44
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.
45
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
46
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
47
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.
48
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.
49
Assignment of Mortgages
The process whereby a mortgage lender transfers his interest in a mortgage to a third party loan is known as: ASSIGNMENT. ONLY LENDERS CAN ASSIGN.
BORROWER
— to transfer over to another
— the lender can transfer its interest in the land and it’s right to receive the money, without the consent of the borrower
LENDER CAN SELL THE MORTGAGE TO ANOTHER INVESTOR
— unless the lender fraudulently misrepresents the balance due in the mortgage, the lender will not be liable to the assignee if the borrower fails to repay the debt.
Can only happen from Lender to Lender
50
What is purpose of Foreclosure?
1/ to extinguish the borrowers Equitable Right to Redemption
2/ to allow the lender to realize on it’s security
The borrower has defaulted, the legal or contractual right to redeem is already extinguished.
51
Typical 5 Steps to Foreclosure Process
Petitioner (Lender) or respondents(other lenders)
Will be tested.
1/ Demand Letter to Borrower from Petitioner.
2/ Petition to Court let me foreclose.
3/ Petition Hearing
4/ Order NISI (redemption period issued by court)
5/ Order Judicial Sale or Order Absolute Foreclosure
DPNO
52
Order NISI. ####On all Exams. ####
Give time to borrower for redemption. Give them usual redemption period is 6 months but lender will decide how long.
Order NISI - generally means Court gives Additional Redemption Period. More time to pay.
- 1st Court Apperance
- judge will generally grant Order NISI
53
The Petitioner can apply for
Judicial Sale
- No Equity in property
- Owner can still be liable - personal covenant
- most common in BC
Order Absolute of Foreclosure
- Equity in Property
DOES NOT WIPE OUT ALL OTHER CHARGES, LIENS, TAXES OWING, ENCUMBRANCES, INTERESTS OFF THE TITLE LIKE 1st LEGAL MORTGAGE
- Owner is no longer liable - No Personal Covenant
- Lender becomes registered owner. No further action can be taken against tge owner
54
Can second mortgagee start Foreclosure proceedings
Yes
55
Under the Interest Act can Corporations prepay the mortgage after 5 years since the mortgage was initiated.
NO NO NO NO NO NO NO NO Corporations have to pay the full amount of interest remaining in the term contract WHILE Individuals will only pay 3 months interest or Interest Rate Differential (IRD)
If 5 years left in the term, then CORPORATIONS pay 5 years of interest.
56
Interest Act vs BPCPA vs Criminal Code
Federal Interest Act does not have any rate noted that is considered excessive.
61% in the criminal code is considered criminal
However, mortgages and loans relief can be given by BC BPCPA.
57
What is a Mortgage?
Mortgage is not a loan.
It is an interest in land created by Contract.
Evidence of a loan as security.
58
In a mortgage Transaction the Mortgagee is:
Granted the mortgage as security for a loan.
59
Investor wishes to invest 8,000 at end of each year for 7 years, what will be the amount of his investment end. J 16% per annum is J1= 16%.
N= 7
Pyr = 1 (1 deposit per year)
PV = 0 because deposit is end of each year
Press: FV = calculate Value of investment
$91,310.99
60
What Rate of interest per compounding period would allow savers to double their money, in 8 compounding periods?
You have to make ASSUMPTIONS
N - Assume this is 8 years. (8x1= 8)
P/yr - Assume 1 compounding period per year. ENTER 1
PV - Assume You invested $100
PV - Assume you doubled $100 to $200. Enter -200
Enter I/YR. = 9.05077326653 Nominal Annual Interest
61
If investor is getting paid 300 monthly, Investment is 23250, over 17 years, wants to know investment yield with nominal rate semi/annual compounding.
```
Step 1. Calculate I/YR based on monthly payments
N= 17x 12 =204
PV = 23250
FV = 0
P/yr = 12
PMT = -300
Press I/YR = 14.040903
```
Step 2 convert to Semi Annual Compounding -
Enter Shift Effective
Enter 2 Shift P/yr
Enter Shift Nom
answer = 14.458090
62
PV is zero when
Deposit or Payment is made at end of month.
63
Interest Accruing Loan means:
No PMT Amount to enter.Enter ZERO
64
Nominal Rate is
The J Rate
65
Which of the following is an Equitable Mortgage
Mortgage of the Equity Redemption
Agreement to execute a legal Mortgage
Mortgage by way of deposit of the duplicate certificate of Title (DCT)
All are Equitable Mortgage
66
Mortgage
Is an interest Land created by Contract
A mortgage is security for the loan that the lender gives to the borrower. It is NOT a loan, it is an EVIDENCE of a loan.
MORTGAGE = CONTRACT = SECURITY
67
Lender = Mortgagee
Provides Loan to borrower and Receives MORTGAGE as SECURITY
68
Borrower = Mortgagor
Obtains loan from Lender and Grants Mortgage as SECURITY or COLLATERAL for LOAN
69
In BC, Mortgages are a REGISTERED CHARGE Against The Property
Lenders who hold a mortgage registered as a charge on an otherwise clear title to borrowers land have:
An INTEREST in land created by contract
Obligation repaid = mortgage interest “discharged”.
70
Registration of Mortgages
A registered mortgage is not “GUARANTEED” under BC Land Registry System (TORRENS)
BC’s TORRENS system does not extend indefeasibility to charges.
Registration of a mortgage raises only a rebuttal presumption that the mortgage is valid
Rebuttal. Taken to be true unless proven otherwise
Registration of the mortgage transfers the mortgagors “INTEREST IN LAND” to the Mortgagee as security for the repayment of the debt.
Unlike a registered Fee Simple, a registered charge is “NOT GUARANTEED”
Even if not registered at the LTO, it is STILL ENFORCEABLE” between the parties to the mortgage.
71
Clogging
Basically the Bank is stopping you from doing something. Like getting back clear title after you repaid the debt. They are not Allowed to do that.
72
What is your Equitable right of REDEMPTION?
If Property Value $1,000,000
Mortgage is. 800,000
The equity of redemption is 200,000
i. e. The remaining interest in land.
73
After 1st legal mortgage they are known as
EQUITABLE MORTGAGE.
2nd / 3rd / 4th Mortgage. It is known as EQUITABLE MORTGAGE.
THESE MORTGAGE EATS UP YOUR EQUITY
74
“Agreement for Sale”. On Exam
Lender or Owner does not trust you so sale is like Rent To Own.
A contract between buyer and seller to sell interest in a property by instalments . The seller agrees to
— convey legal title to buyer after payment of the purchase price.
— Downpayment + monthly payments (P+I)
— the seller grants possession immediately
— promises to execute a freehold transfer as soon as the final payment towards purchase is made
Agreement for Sale” - vendor agrees to sell interest in land for a price payable by instalments upon payment of the price in FULL. EXAMPLE: Rent To Own
75
Duplicate Certificate- creates an Equitable mortgage
If removed from LTO you cannot sell property
Mortgage lenders have clause you can’t take it out.
76
Which of the following is an example of an “equitable mortgage”
1. Mortgage of the equity of redemption
2. Agreement to execute a legal mortgage
3. Mortgage by way of deposit of the duplicate certificate of title
The answer is All of the above.
77
“Equitable Right of Redemption” is first Legal mortgage VS
Equity of Redemption is all Subsequent Mortgage that use up your Equity
Mortgage of “Equity of Redemption” (could be 2/3/4 mortgage is different from Equitable Right of Redemption - is always 1st Mtg.
78
Contractual Clauses.
It is up to the lender to choose to remedy it feels is the most advantageous in the circumstances
Acceleration Clause - worst clause for Borrower
— maturity date of the loan is pushed forward and lender demands to be paid out in Full (7 days)
Omnibus Clause
In default of payment the lender will make the payment and it will be added to the loan
79
Lenders Remedies Clause and Mortgage in Possession Clause
Lenders Remedies Clause - can choose whichever clause they want
Mortgage in Possession Clause — can take possession of your house to limit losses
80
Acceleration clause — only 7 days notice
777777777777 days only
81
Reverse Equity Mortgage. — Requirements- no other mortgage exists on title.
Lender makes payments to the borrower ( retiree homeowners)
Uses up Equity in the their homes
Alternative to 2nd mortgage (mortgage if equity of redemption)
82
Interim Blanket Mortgage
Mortgage placed on the whole development and can be released from each individual lot as they are purchased
Mortgage placed on the whole development and can be released from each individual lot as they are purchased
83
Vendor Take Back Mortgage
Vendor provides financing because of poor credit or better interest rates than bank
84
Bridge Financing
— Borrowers receive a loan and grant a mortgage to a lender for a short period of time while long term financing is being pursued.
— 2 properties, short term while lender scrutinizes borrower
One property not sold while another bought
85
EMA
86
Assignment 1
To transfer over to another Sell the Mortgage
Original Contract stays intact (when lenders are selling as investments. )
87
Assignment of a mortgage
Obligor - original borrower
Assignor original Lender party to contract
Assignee (3rd party) investor who bought Mtg.
1..The lender can transfer interest in land (mortgage) and the right to receive money,
without
2. The consent of Obligor (borrower)
3. The borrower must receive notice of the assignment - if Not received they can continue to pay original lender. Assignor
88
Assignments Example on Test
Unless the lender Fraudulently misrepresentations the balance due on mortgage, the lender (bank A) will not be liable to the assignee (Bank B) if the borrower fails to repay debt.
If Obligor (borrower) does not pay Mtg.
— Bank A is liable if fraudulent amount given
— Bank A told correct balance then Bank B is responsible
89
Assignment Example
Can assign benefits (monthly payments) but not liability under contract to a 3rd party, then can sue to enforce those benefits.
Two types;
Statutory. — legal requirements: in writing; for the whole amount; gave notice to Obligor.
90
Assumption of a Mortgage
— a mortgage allows a buyer to assume or take over the responsibilities and liabilities under the mortgage from the seller (original borrower)
— the original borrower may remain liable on the personal covenant if the buyer who assumes the mortgage DEFAULTS on his payments.
Due on sale clause - prevents the mortgage to be assumed by anyone unacceptable by the lender. They can sell the home but just can’t have mortgage assumed without approval by lender.
— allows the lender to collect on all amounts under the mortgage including prepayment penalties upon sale of property
91
Novation
— Occurs when the original contract between lender and seller is replaced by a new contract between the lender and the buyer.
— it is the substitution of one contract to another, where the original borrower will be released from further liability.
The most important fact to note is that Novation the consent or acceptance of all parties to the relevant contract.
This includes the lender, seller (original mortgagor) and the buyer.
1. Original Buyer/Owner and Lender = Contract
2. Original Owner becomes Seller to 2nd buyer/owner
3. 2nd buyer/owner asks to ASSUME Original OWNER’s terms
4 2nd Owner plus LENDER
In this case a NEW contract has replaced the Original Mortgage contract.
92
In foreclosure you can get either judicial sale or order absolute
The purpose of a foreclosure is to:
1. Extinguish the borrowers Equitable right to redemption (redeem the property)
2. Allows the lender to realize on its security.
The borrower defaulted so they lost the right to redemption.
####in the exam always. ####
93
DEFAULT — Typical Foreclosure Proceedings
1. Demand Letter to Borrower
2. Petition
3. Petition hearing
4 Order NISI (additional Redemption Period)
5. Order of Conduct of Sale or Order Absolute
94
Order NISI. (Foreclosure)
The Court Order usually obtained FIRST is an Order NISI (order nice guy)
Order NISI —
— first court appearance claim for foreclosure is brought - judge will usually Order NISI.
— it sets the final redemption period, during which the respondents can redeem the mortgage by paying the amount due and owing
95
Order Absolute of Foreclosure
####will be on Exam####
— equity in property
— owner is no longer liable - no personal covenant
—lender becomes registered owner
— no further action can be taken against the owners
—Don’t have to share profit from excess equity
— have to pay other mortgages or charges like government taxes, liens, equitable mortgage 2/3/4 etc
96
Order of Conduct of Sale (Judicial Sale)
— no equity In property
— owner can still be liable Personal Covenant.
—most common in BC
— can go after borrowers if still owing after judicial sale. Under Personal Covenant. Borrower not off the hook.
97
John Grants mortgage to Mary
John is borrower
Mary is lender
Assume Mary is not pursuing foreclosure but has following choices
Mary will pursue personal covenant
1. Order NiSI
2. Personal Covenant- contractual promises (CORRECT ANS)
3. Collateral Advantage
4. Priorities— refers to losing priority over other charges like liens, taxes owing, etc. GOVERNMENT CHARGES GAVE PRIORITY OVER OTHER CHARGES
If John defaults then
98
Omnibus Clause
This clause gives the LENDER an alternative to Accelerating the loan if the borrower defaults.
An omnibus clause allows the mortgagee (bank) to pay monies to be paid by the mortgagor ( eg. property Tax, strata charges). If unpaid charges they can be added to the principal amount owing.
These charges are ahead in priority over mortgage loan.
99
Mortgagee (lender) has a LEGAL right of redemption subject to the equity of redemption.
Mortgage is a *SECURITY* for a loan. It Is NOT a loan. The Lender who holds a mortgage registered as a charge on an otherwise clear Title on the borrower’s land has “INTEREST IN LAND CREATED BY CONTRACT “
Mortgagee (lender) has a LEGAL right of redemption subject to the equity of redemption.
A mortgage in itself is not a debt, it is the lender's security for a debt. It is a transfer of an interest in land (or the equivalent) from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.
100
After the borrower has given a mortgage of real property, the borrowers remaining interest is described at law as: AN EQUITY OF REDEMPTION
After the borrower has given a mortgage of real property, the borrowers remaining interest is described at law as: AN EQUITY OF REDEMPTION
101
A mortgage that is granted, but for procedural reasons is not registrable, is an EQUITABLE MORTGAGE.
Even if a Mortgage is not registered it is still enforceable.
A mortgage that is granted, but for procedural reasons is not registrable, is an EQUITABLE MORTGAGE.
102
An option to purchase the Mortgaged property given by the borrower to the Lender is VOUD
ITS considered a CLOG to the equity of redemption
An option to purchase the Mortgaged property given by the borrower to the Lender is VOID
ITS considered a CLOG to the equity of redemption
103
Redeeming the mortgage
— within reasonable time
— redeeming free from all conditions or term of contract and
— freedom from collateral advantage (clog)
These are Implied Terms of a mortgage.
104
Repayment Clause
States that the full amount outstanding is due and payable on a fixed date after the loan is made.
This sets the Maturity Date. Which can be brought forward by the acceleration clause.
105
Personal Covenant is the personal contractual PROMISE to pay the Principal and interest.
106
CANADA Interest Act
Does NOTTTTTTTTT APPLY TO
CORPORATIONS
So no PREPAYMENT if the mortgage after 5 years
107
Under BC Land Title System, a mortgage is registered as a charge against the property of which the MORTGAGOR is:
The registered OWNER.
108
Section 6 Interest Act
Where a mortgage requires Blended Payments, the mortgage document must contain a statement of the interest rate calculated either “YEARLY OR HALF YEARLY, NOT IN ADVANCE”
109
If you sell by Assumption method. This does not relieve you of the personal covenant to pay all that you’ve promised in your mortgage contract. You will have full fill all your obligations. Need to discharge the mortgage to give clear title.
—Lender has the right to receive the money and security
—Borrower has obligations to pay
Bob grants mortgage RBC
Bob sells house and Helene assumes Mtg
Helene defaults
Bank goes after Bob, since H can’t pay. Banks started going after original borrower. It was his personal covenant to pay. Bob could not assign his obligation to pay
People went to their government to get this fixed. Property law Act limits Bobs obligations. This is for residential mortgage only
PLA - if bank consents to assumption. Law made it that banks can’t unreasonably withhold consent if assumption. In this case Bob would be off the hook.
If the term of Mtg expires, if bank does not demand payment within 3 months of expiry, Bank could have approved H to get the renewal of the mortgage. Bob would be off the hook.
110
Principal of Good Faith
The duty of parties to a contract to act honestly in the performance of their contractual obligations
111
Collateral Advantage clauses are no longer considered “CLOGS” on the borrowers “equity of redemption “ even if they go beyond the term of mortgage
Example: agreement to sell oil at gas station. Oil is coming from the lender.
112
A mortgage of the mortgagors “equity of redemption” is called: AN EQUITABLE MORTGAGE. The borrower is free to mortgage this equitable interest by granting a 2nd, or subsequent, mortgage against their EQUITY remaining AFTER the 1st Legal Mortgage.
These subsequent mortgages are mortgages on the borrowers EQUITY of REDEMPTION. ( the borrowers right to repay the mortgage and redeem title to the property.
113
What happens if Second Mortgagee receives from the court AN ORDER ABSOLUTE OF FORECLOSURE
DOES NOT WIPE OUT ALL OTHER CHARGES, LIENS, TAXES OWING, ENCUMBRANCES, INTERESTS OFF THE TITLE LIKE 1st LEGAL MORTGAGE
Cannot sue borrower on the borrowers personal covenant
114
Builders Lien Act
Gives liens priority over mortgage charges on title.
115
The registration of the mortgage in the land title office is a:
Rebuttal presumption that the charge is valid.
Remember that just because someone registers a builders lien on your property dies not mean it’s true. You can fight in COURT AND REBUTTAL THE CHARGE.
Remember that just because someone registers a builders lien on your property does not mean it’s true. You can fight in COURT AND REBUTTAL THE CHARGE.
The Mortgage can be fraudulently placed on your title
116
I grant this Mortgage to lender Absolutely , promise to pay, take over ownership of the land. Take all incomes. If you don’t pay we keep the land.
Mort - Death
Gage- pledge
This is before Courts of Equity
— give borrowers extra time to pay and it’s called ****Equitable Right of Redemption (ERR)*****
Extra time pay / in BC 6 months - it’s an implied Term in the MTG
2) The prohibition against CLOGGING
— clogging the borrower’s right to redeem
Interest Act - Feds Stat. If 5 years passed on your MTG term, you gave prepayment privilege
3) Collateral Advantage— lender you are paid principle and interest, you don’t have right to take over the Equity.
— void if harsh, unfair and unconscionable
Legal title passes to the Lender (Mortgagee
117
First Mortgage = LEGAL MORTGAGE
= conveyance of title to Lender (Mortgagee)
Subsequent Mortgages = Equitable Mortgages
— Mortgage of the “Equity of redemption” the Mortgagors right to redeem.
—2nd / 3rd Mtg. Are also called EQUITABLE MTG
— by deposit of Duplicate Certificate of Title. - this is another type of EQUITABLE MORTGAGE.
— if the DCT is out, you can’t register another mortgage.
Property Value = 100,000
First Legal Mortgage = 80,000
Equity of Redemption =20,000
118
Express Terms of Mortgage
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LTO required lenders to file either:
— Standard Terms
— Adopt the standard terms of LTO
AND
— Form B
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Repayment — they the banks don’t allow us to prepay. This relates to Fixed Mortgage
Open Mtg - can prepay.
At the end of the Term. The bank does not have to renew.
Acceleration on Default — if you default your payment- the accelerate the full payment. This is at Lenders Option.
119
Interest Act (Federal)
—
— cannot pay higher interest on default
— Blended payment- Mtg must say the interest is semi-annually or Annually. If not written then NO interest.
Section 10
— gives right of repayment ( with 3 months of additional interest), if conditions are met. Can get discharged from Mortgage.
Criminal Code of Canada
Criminal code imposes a 60% per annum maximum
Business Practices and Consumer Protection Act
— relieves those involved in transactions that are “so harsh or adverse….as to be inequitable”.
120
Lender Remedies
1 Demand Letter
2. Bank files petition with the borrower named respondent asking for:
— Accounting
— Judgement on promise to pay
— right to foreclose
— Receiver
— costs
3. Order Nisi
— Establishes amount owing and redemption period Usually, 6 months
— the owner can sell and pay off the mortgage.
Judicial Sale
— bank will go back within 4/5 months. Will try to get a Judicial sale. Judge will have to approve. Conduct Sale
— sealed bids, highest seller gets it. Borrower gets excess/and have to pay deficiency
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Order Absolute (foreclosure)
— bank becomes registered owner
— borrower has no obligation for deficiency
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Possession and Sale ( contractual power of sale
— in BC, judges gave generally not allowed lenders to exercise this contractual right.
— clog on equity if redemption since this maybe less than 6 months
1st - Petitioners - Respondent will be the first Mortgagee will sell take $ first
2nd Mortgage gets leftover
