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GOBC Real Estate • Mortgage Class Notes

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7.1
Mortgage Law

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 7.1 Mortgage Law
MORTGAGE
AN INTEREST IN 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 evidence of a Loan = Debt
loan. Mortgage = Contract = Security

MORTGAGE DOES NOT NEED TO BE REGISTERED TO BE EFFECTIVE In BC Mortgages are registered as

Lender is the “registered owner” of the mortgage (charge) a CHARGE against the property

Lenders who hold a mortgage registered as a charge

Registration of Mortgages on an otherwise clear title to a borrower’s land have:
A registered mortgage is NOT “guaranteed” under the BC An interest in land created by a contract
land and registration system
o BC’s Torrens system does not extend indefeasibility to Obligation repaid = mortgage interest “discharged”
charges (from Title Registration in BC chapter)

Registration of a mortgage raises only a rebuttable

presumption that the mortgage is valid
o Rebuttable: taken to be true unless proven otherwise

PRIORITIES
WHEN REGISTERED – they take
priority over all subsequent
charges and unregistered
interests in the property
Except for:
1. Strata Property Act - unpaid strata fees
2. Builders Lien Act - builder’s liens
3. Employment Standards Act - lien for wages owed by
employer
4. Workers Compensation Act - lien for unpaid fines or
insurance fees
5. Local Government Act/Community Charter - unpaid
property taxes or other municipal fees
6. Claims under the federal Income Tax Act, Canada
Pension Plan, Employment Insurance Act, and Excise
Tax Act.

Charges in Priority clause

requires the borrower keep priority charges up

to date (paid and in good standing)

Ensures the lender’s security position is protected

o keeps them as top priority even though they aren’t
technically in the first priority position
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 7.1 Mortgage Law
Personal Covenant Other Mortgagor covenants (promises)

the personal contractual promise made by 1. Pay all taxes on land and improvements
2. Keep premises in reasonable repair and well maintained
the mortgagor (borrower) to pay the
3. Pay the debt and interest as scheduled in the contract
mortgage money and interest of the
4. Provision to insure the property to replacement value or such lesser amount as
mortgage the mortgagee determines

EXPRESS TERMS vs IMPLIED TERMS

IMPLIED TERMS – implied by statute or case law; NOT in the contract
EXPRESS TERMS – stated IN the contract
o Examples: Charges in Priority clause, Repayment Clause, Insurance clause, Acceleration Clause, Omnibus clause, Repairs
clause, Lender’s remedies clause, Advances clause, Guarantor clause, Due on Sale clause, Portability clause
o These clauses can be requirements before the lender will give money

IMPLIED TERMS in Mortgages Clogging Repairs clause

The Prohibition Against Clogging 1. Options to purchase taken by the requires the borrower keep the
A borrower cannot be prevented by the lender land and buildings in good repair
terms of the mortgage from eventually 2. Changes to the nature of the and can also require the borrower
redeeming his or her property free from the mortgage which make it to get the lender’s permission to
conditions contained in the mortgage - “there shall make alterations or add
be no clog on the equity of redemption” impossible or difficult to redeem
3. Postponement/delay of right to improvements to the property
Stipulations for a Collateral Advantage
redeem which is oppressive or Ensures the property’s value is
A term(s) giving the lender advantages in addition to
the principal and interest payments; example: unconscionable maintained
borrower-owner of a gas station may promise that
Any mortgage or mortgage
during the term of the mortgage he or she will
purchase only the lender’s automobile products term that CLOGS the owner’s Advances clause
right to redeem is VOID.
The Principle of Good Faith and the Duty of gives the lender
Honest Performance Portability Clause complete discretion in
Parties to a contract are under a duty to act honestly deciding whether to advance
in the performance of their contractual obligations Borrowers can take their current some or all of the money secured
mortgage to a new property and by the mortgage
Guarantor Clause can maintain his current
favourable rate. Some mortgages provide for the
Creates a separate personal covenant of a full amount to be given in stages -
third party (guarantor) in addition to the BLENDED RATE - If additional money building a house on bare land,
is needed by the borrower: developer projects, etc.
borrower’s personal covenant
o the “old” loan amount at its rate of
Ø This gives the lender additional security interest is added to the “new” loan
Quitclaim Deed
Ø On default, lenders can pursue the guarantor amount at current interest rates
for the mortgage debt if the lender suffers a o Borrower may have to requalify Terminates the borrower’s
deficiency when the property sells (possibly under stricter lending interest in a property in favour
rules) of the lender.
Ø WHY? When the borrower’s income or assets
are insufficient on their own to meet the
lender’s or mortgage insurer’s borrowing
guidelines

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 7.1 Mortgage Law
1st, LEGAL MORTGAGE EQUITABLE MORTGAGES
1ST Mortgage - Legal Mortgage 2nd, 3rd, 4th, etc. Mortgage
Will be for smaller amounts and bear higher interest rates
Ø Transfers legal Title to the property from the
owner to the lender EQUITABLE MORTGAGES are created by:
Ø Usually for largest amount of the property’s Mortgage of Equity of Redemption
loan Property value $500,000, mortgage of $400,000
= $100,000 equity of redemption
Contractual right of redemption - borrower has
right to redeem title by repaying the loan. Deposit of Duplicate Certificate of Title
To be effective as a mortgage - there must be an actual delivery (deposit) to the
lender (NOT Land Title Office!) + intention to create a mortgage

Equity of Redemption = remaining interest

CONTRACTUAL CLAUSES
apply when the borrower defaults:

It is up to the lender to choose the

remedy it feels is the most Agreement to Give a Mortgage
advantageous in the circumstances an agreement to grant a mortgage in the future (Present equitable mortgage)

Acceleration clause Disguising a Mortgage as a Transfer

Maturity date of the loan is pushed forward and a loan agreement may appear as transfer of fee simple to circumvent the doctrine
lender demands to be paid out in full (time is given; of the equity of redemption
can vary) o Main purpose: to offer land as security for a loan
o The Court will recognize it to be a mortgage, and will recognize the equity of
Lender’s Remedies clause redemption.
This gives lender complete discretion to choose most
suitable remedy Agreements for Sale
Vendor agrees to sell his interest in land for a price payable by installments upon
Mortgage in Possession clause payment of the price in FULL (RENT TO OWN)
Lender can take possession of a property to prevent
o Down payment + monthly payments (principal
additional losses (due to decline of property or direct and interest)
damage) o The seller grants possession immediately
o Promises to execute a freehold transfer as soon
Omnibus clause as the final payment towards the purchase price
In default of payment, the lender will make the is made
payment and it will be added to the loan

Vendor “take back” Mortgage

o May be used when the purchaser can not obtain a loan through the bank
because of poor credit score or wanting better terms
MORTGAGE TYPES o Licensee must ensure that the vendor receives a fair price & adequate
security for the “loan”
Reverse Annuity Mortgage (RAM) o Gets priority through the time of registration (like other mortgages do)
o Lender makes payments to the borrower o No lending institution involved
(retiree home owners) o Not limited to a certain value
o Alternative to 2nd mortgage (mortgage of equity o No limit to the interest rate
of redemption)
Bridge Financing
Interim Blanket Mortgage o Borrowers receive a loan and grant a mortgage to a lender for a short
o A mortgage placed on the whole development period of time while long-term financing is being pursued properties, short
©Copyrightand can be released
2024/2025 from each
GOBC Training individual lot as
LTD term while lender scrutinizes borrower 4
they are purchased o 2 properties, short term while lender scrutinizes borrower
 7.1 Mortgage Law
FEDERAL LEGISLATION PROVINCIAL LEGISLATION
Criminal Code Business Practices Consumer Protection Act (BPCPA)
It is an offence for a person or a corporation to enter into an The Court can re-open a mortgage transaction under the
agreement to receive interest at a criminal rate (over 60%).
Consumer Protection act if it believes the interest rate is
Interest Act harsh or unconscionable.
1). No limit specified for mortgage rates
2). For blended payments (Principal + Interest) - mortgage Allows borrower the right to ATTACK the rate of interest.
document must contain a statement of the interest rate
calculated either “yearly” or “half-yearly not in advance” The Environmental Management Act (EMA)
3). The interest rate on arrears (late payments) under a
mortgage may not exceed the rate payable on the principal The Lender is NOT liable if site is contaminated if they:
monies not in arrears o Participate only in financial matters
4). If the document does not mention interest, no interest can o Impose requirements on a person to inspect the site
be charged o Insist on environmental conditions with a security
5). If document requires interest to be paid with no set amount, agreement
the rate allowed by law is 5 %.
BUT a Lender IS liable if they:
Section 10 - the “right to prepayment” o Exercise control over or impose requirements which
A borrower has a right to prepay ALL of the cause a site to become contaminated
outstanding debt at any time after 5 years from o Become a registered owner of a contaminated property
initiation of the mortgage with a 3 month penalty
(1) Does not apply to corporations - Only applies to Mortgage Brokers Legislation
(2) mortgages on property not owned by a corporation Mortgage Brokers Act defines a mortgage broker (MB) as a
commercial mortgage CAN be prepaid, person who:
if it is not held by a corporation o Lends money completely or partially secured by
mortgages
(3) NO absolute right to prepay o Represents themselves as MB (by an advertisement or
(4) No restrictions on the value of mortgage sign)
o Buys and sells mortgages or agreements for sale
o Receives at least $1,000 per year in fees for arranging
mortgages for other people
o Makes at least 10 mortgage loans in a year
o Collects money secured by mortgages

ASSIGNMENT of a Mortgage
Ø To transfer over to another
Ø Original contract stays intact (when lenders are
selling mortgages as investments)
Ø The lender
Due on can transfer
Sale its -interest in the land and its
Clause
Mortgage is an asset that can be sold to an investor right to receive the money, without the consent of
the borrower
Prevents the mortgage from being assumed
This is an Assignment!
Ø The Borrower
by anyonemust receive notice
unacceptable of the
to the assignment
lender
- if no notice is given, then the borrower will continue
Ø Can assign away benefits, but NOT liabilities, under a contract to Allows the lender toA)collect on all amounts
pay to the Assignor (Bank
a third party and the third party can sue to enforce those Ø Unlessowing under
the lender the mortgage,
fraudulently including
misrepresents the
benefits. prepayment
balance due on thepenalties,
mortgage, theupon sale lender
original of the
Two Types: (Bankproperty
A) will not be liable to the assignee (Bank B) if
o Statutory - meets legal requirements: in writing, for the whole the borrower fails to repay the debt
amount and unconditional, notice given to promissor
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 7.1 Mortgage Law
ASSUMPTION of a Mortgage NOVATION
Ø allows a buyer to assume or take over the responsibilities and Occurs when the original contract between the lender
liabilities under the mortgage from the seller (original and the seller is replaced by a new contract between
borrower) the lender and the buyer
Ø the original borrower may remain liable on the personal
covenant if the buyer who assumes the mortgage defaults on It is the substitution of one contract for another, where
his or her payment the original borrower will be released from further
Ø to release the original borrower from liability, the lender's liability
approval of the new purchaser must be in writing

Under the Property Law Act:

Ø Where a lender expressly approves in writing a Buyer’s
assumption of the mortgage or agreement for sale, then the
Seller’s liability will cease
Ø The lender is not allowed to withhold its approval
unreasonably
Ø Property Law Act protection applies only to
Residential mortgages and agreements for sale

Due on Sale Clause

prevents the mortgage from being assumed by anyone unacceptable to The most important fact to note is that novation
the lender allows the lender to collect on all amounts owing under the requires the consent or acceptance of all parties to
mortgage, including prepayment penalties, upon sale of the property the relevant contract

Foreclosure Proceeding
The Purpose of a Foreclosure: Typical Foreclosure Proceeding
Ø to extinguish the borrower’s equitable right to redeem Petitioner and Respondents
Ø to allow the lender to realize on its security
DEFAULT
The Borrower has defaulted, the legal or contractual right to redeem
is already extinguished. 1. Demand Letter to the Borrower
2. Petition
3. Petition Hearing
Foreclosure – Receiver appointment 4. Order NISI (redemption period)
If the mortgaged property has been abandoned or contains 5. Order of Conduct of Sale (Judicial Sale)
a commercial operation, the lender may request that the or Order Absolute
court appoint a receiver.
Redemption period is usually 6 months
Receivers:
1. collect the rents
2. pay the bills Order NISI (nice guy)
3. generally keep the business going The first Court Order usually obtained in a foreclosure action.

o the receiver is accountable to the court for his or her At the 1st court appearance where a claim for foreclosure is
actions brought, a judge will generally grant an order nisi
o the receiver’s fee will be added to the amount
outstanding under the mortgage It sets the final redemption period, during which the respondents
can redeem the mortgage by paying the amount due and owing.

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 7.1 Mortgage Law
The Petitioner may apply for:
Order of Conduct of Sale (Judicial Sale) Order ABSOLUTE of Foreclosure

Ø Not enough Equity Ø Enough Equity in property

Ø Owner can still be liable - Personal Covenant Ø Owner is no longer liable - NO Personal Covenant
Ø Most common in BC Ø Lender becomes registered owner
Ø Further action can be taken against the owner Ø No further action can be taken against the owner

Questions
1). Which of the following most correctly completes the phrase: “A mortgage is ...”
(1) a contract, evidence of a loan, and required to be registered to be effective between the parties.
(2) a contract, evidence of a loan, and security for a loan.
(3) a contract, and a loan.
(4) a contract, evidence of a loan, security for a loan, and required to be registered to be effective between the parties

2). Any clause contained in a mortgage which clogs the equity of redemption is:
(1) valid
(2) void
(3) illegal
(4) usurious

3). After a borrower has given a mortgage of real property, the borrower's remaining interest is described at law as:
(1) a right of foreclosure
(2) a common law mortgage
(3) the equity of redemption.
(4) None of the above.

4). After the contractual right to redeem has passed on a mortgage:

(1) the borrower must give up the mortgaged property.
(2) the lender is the owner of the mortgaged property
(3) an equitable right to redeem still exists
(4) the borrower owes a higher rate of interest on the arrears than on the principal if the borrower redeems.

5). George owns Sol, and decides to transfer ownership of his property to his friend Frank for $200,000. The transfer documents
allow George to remain in his house rent-free for the duration of the agreement. George also has the option of having the
property transferred back to him if, within 6 years, he repays Frank the $200,000. The main purpose of this transaction was for
George to offer land as security for a loan from Frank. Which of the following is TRUE?
(1) The transaction is a mortgage. After 6 years, George cannot regain title to the property.
(2) This is a transfer agreement. However, because George has an equity of redemption, Frank can recover his $200,000
upon demand.
(3) This is a transfer agreement which will be fully carried out if George does not repay Frank the $200,000 within 6 years
(4) The agreement is a disguised mortgage and George will have the right to redeem Sol free and clear upon repaying Frank
the $200,000

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 7.1 Mortgage Law
6). When a mortgagor grants a mortgage subsequent to a first registered mortgage, the mortgagor has created:
(1) an equitable mortgage
(2) a legal mortgage
(3) an assignment of the first mortgage
(4) none of the above

7). A contract between the vendor of real estate and the purchaser whereby the vendor agrees to sell his/her interest in that land
to the purchaser for a specified price payable in installments and, upon payment of the price in full, to transfer title to the
purchaser is called:
(1) an equitable mortgage
(2) an agreement of purchase and sale.
(3) an agreement for sale
(4) a disguised form of mortgage.

8). 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
(4) all of the above

9). An equitable mortgage can be created in each of the following ways EXCEPT:
(1) by registration in the land title office of the duplicate certificate of title
(2) by mortgage of the equity of redemption.
(3) by an agreement to give a mortgage
(4) by disguising a mortgage as a transfer

10). Which of the following contractual clauses in a mortgage does NOT apply where a borrower defaults?
(1) A “lender’s remedies” clause
(2) A “sales” clause
(3) An “acceleration “ clause
(4) A “ mortgage in possession” clause

11). Which of the following statements regarding mortgages is TRUE?

(1) An acceleration clause allows the lender to accelerate the expiry of the term of the mortgage and demand repayment of
the entire loan amount, provided that the borrower is given three months’ notice
(2) The mortgage contract, in addition to the common law, provides the lender with a number of options and remedies to
pursue when the borrower defaults on the mortgage. It is up to the lender to choose to remedy it feels is the most
advantageous in the circumstances

12). A mortgage common in the condominium development industry whereby the mortgage contains a clause that permits the
mortgage registered against all of the lots to be released from each individual lot as it is purchased is known as:
(1) reverse annuity mortgage
(2) wrap-around mortgage
(3) interim blanket mortgage
(4) release-by-sale mortgage

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 7.1 Mortgage Law
13). Which of the following statements about federal legislation governing mortgage interest rates is FALSE?
(1) The Interest Act provides that if a mortgage agreement requires interest payment but does not specify the rate of
interest chargeable, the rate allowed by law is 5%.
(2) The Criminal Law defines a criminal rate of interest as an affective annual rate is excess of 60%.
(3) The Interest Act gives borrowers the right to attack the rate of interest being charged in a mortgage on the basis that
the rate is either harsh or unconscionable.
(4) Section 10 of the Interest Act provides an individual with the right of prepayment on his or her mortgage at the expiry of
five year from the date of the mortgage, if the mortgage provides that it is not payable for more than 5 years from the
date of the mortgage.

14). Where a borrower believes that the amount of interest being charged is excessive, under which statute might relief be
granted?
(1) the Interest Act
(2) the Business Practices and Consumer Protection Act
(3) the Land Titles Act
(4) all of the above

15). With respect to the application of the Environmental Management Act (“EMA”) to mortgage, which of the following is TRUE?
(1) Lenders can face liability under the EMA if that become registered owners of the property as a result of a foreclosure.
(2) The EMA automatically makes a lender partially responsible for environmental contamination of a property if the
lender’s mortgage was registered on title at the time of the contamination
(3) Lenders can file a notice with the EMA before providing mortgage proceeds directing the Director of Waste
Management to conduct an environmental assessment of the subject property.
(4) The EMA has no application to mortgages

16). Which of the following statements regarding a due on sale clause is TRUE?
(1) A due on sale clause provides that when a property is sold, the buyer of the mortgaged property has the option to
assume the mortgage
(2) If a mortgage contains a due on sale clause, any outstanding balance on a mortgage must be assumed by the buyer of
the mortgage property
(3) If a mortgage contains a due on sale clause, the borrower cannot sell the mortgaged property without written approval
from the lender.
(4) A due on sale clause allows the lender to collect on all amounts owing under the mortgage, including prepayment
penalties, upon sale of the property.

17). The process whereby a mortgage lender transfers his interest in a mortgage to a third party is known as :
(1) assumption
(2) take-back
(3) assignment
(4) foreclosure

18). When the original loan agreement between the lender and a seller of property is replaced by a new loan agreement between
the lender and the buyer of the property for the mortgage debt, what legal concept has occurred?
(1) Assignment
(2) Novation
(3) Redemption
(4) Foreclosure

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 7.1 Mortgage Law

19). Describe the best answer in regards to the steps in foreclosure:

(1) Demand letter, Petition, NISI, Absolute Foreclosure
(2) NISI, Petition, Judicial sale, Absolute Foreclosure
(3) Petition of hearing, Nisi, Demand Letter, Absolute foreclosure
(4) NISI, Demand Letter, Petition, Absolute Foreclosure

20). In a foreclosure proceeding, the court order that the lender most commonly seeks at the first court appearance is a(n):
(1) action on the personal covenant
(2) order nisi
(3) order for conduct of sale
(4) order absolute

21). After the order NISI is granted to a petitioner and the responded borrower fails to pay the amount owed by expiry of that
redemption period, the petitioner may apply for:
(1) A statutory priceity over the property
(2) All charges, except for the petitioner’s to be wiped off the title
(3) A certificate of pending litigation
(4) A judicial sale

22). The key purpose of a foreclosure action is to:

(1) extinguish the borrowers equitable right to redeem the property
(2) obtain judicial recognition that the lender has a valid mortgage on the particular property.
(3) register a mortgage with the Land Title Office
(4) obtain a quitclaim deed in the property whereby the borrower agrees to forfeit his or her title to the lender

23). When an Order Absolute of Foreclosure is obtained by a petitioner who is in the position of second mortgagee:
(1) that mortgagee has right to sue the borrower on his or her personal covenant
(2) the petitioner may sell the property after taking title to it but will have to account to the borrower for any profit which
might be realized in excess of the mortgage debt
(3) all other charges, liens, encumbrances and interests registered on the borrower's title are foreclosed or "wiped" off the
title
(4) the order forecloses the registered owner's interest in the mortgaged land and permits the petitioner to transfer title
into his or her own name.

24). Jorden grants Mary a mortgage over his property, Blackacre. One of the terms in the standard mortgage contract that they
execute allows Mary, aside from pursuing a foreclosure, to exercise the remedies of an ordinary creditor if Jordan defaults. If
Jordan defaults and Mary pursues this option, she will be taking action on the
(1) order nisi
(2) personal covenant
(3) collateral advantage
(4) priorities

Answers: 1(2), 2(2), 3(3), 4(3), 5(4), 6(1), 7(3), 8(4), 9(1), 10(2), 11(2), 12(3), 13(3), 14(2), 15(1), 16(4), 17(3), 18(2), 19(1),
20(2), 21(4), 22(1), 23(4), 24(2),

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