Chapter 15 - introduction to Mortgage Law

9 - Apply the provisions of various provincial and federal legislation to the issue of property

#3 - Part 2 = all the other terms of the mortgage (BELOW) #5 - Federal/Provinchal Legislation over mortgages - interest act - section 8 of the business practices and consumer protection - environmental management act

11 - Describe the steps involved in a foreclosure proceeding that ends in a ORDER ABSOLUTE OF FORECLOSURE and the rights of the parties involved

- lender must prove property is worth less than $$ owed OR - expiration of redemption period (must prove borrower failed to pay the amount required to redeem the mortgage) - all rights, title, or interest in the property is lost and there will be no right to redemption - lender becomes full owner and gives up any rights to sue borrower for any shortfalls in $$ upon sale WHY would lender choose this option? 1) significant repairs need to be made 2) insurer of the mortgage may require the lender to to obtain order of absolute and transfer the property to insurer before paying the insurance claim 3) Lender may want to take title and rent out the property or sit on it while waiting for market conditions to improve before listing it for sale

4 - Recognize and describe an interim blanket mortgage and why would it be used

A mortgage usually on an entire development property. As each individual property is sold the borrower can pay back a portion of the purchase price of each subdivision/condo when each is sold and that would RELEASE a portion of the mortgage while still keeping the rest of the development property under the mortgage - commonly used in condominium developments or subdivisions in order to initially raise money

12 - Describe an agreement for the sale and how it differs from a vendor take-back mortgage

AGREEMENT OF SALE: *SELLERS REMAINS OWNER OF PROPERTY UNTIL FULLY PAID* - a contract in which the owner of land (seller) agrees to sell land to another (buyer) who agrees to but it - the buyers interest is registered in the land title office as a charge against the sellers certificate of title (**agreement for sale**) - the contract provides that the purchase price will be paid by instalments VENDOR TAKE-BACK MORTGAGE: *BUYER BECOMES OWNER OF PROPERTY IMMEDIATLY AND SELLER OWNS MORTGAGE AGAINST LAND* - the fee simple is transferred to the buyer, and the sellers mortgage is registered as a charge

11 - Describe the steps involved in a foreclosure proceeding that ends in a SALE BY OWNER and the rights of the parties involved

After the court has given an "ORDER NISI" basically granting relief: - declaration that mortgage is in default - amount required to pay mortgage - redemption period (length depends on equity in property/security) *during this time the owner/borrower is free to list and market the property without judicial supervision

8 - Explain how a mortgage can be assumed and what risks are involved, including the continuing liability of the original borrower

Assumable Mortgage = a mortgage that allows a buyer to assume or take over the responsibilities and liabilities under the mortgage from the seller (original borrower) - original borrower may remain liable on the personal covenant if the buyer who assumes the mortgage defaults their payments Direct action against current owner: - if buyer ASSUMES a mortgage even though they are not a party of the original contract the lender may still sue them if they default Limitation of a Vendor's Liability Under Property Law Act: - loan must be for residential purpose - if purpose is for security (ex. using her house as security for a business loan) - if someone assumes a mortgage and then the mortgage term expires the bank has 3 months to demand you to pay the outstanding amount and if they do not then you become not liable for the amount and the only recourse the bank has is to go after the original mortgager - if lender approves in WRITING then it releases liability from vendor *RE agent must draft contracts with an assumption of mortgage is involved to PROTECT the VENDOR - include in the contract something stating that the buyer will accept all liability to mortgage and release of liability of seller Another instance (Property Law Act) where a borrower/guarantor of mortgage debt will be released of the mortgage debt is NOVATION NOVATION = original borrower/guarantor will be released from further liability (applies to everyone) - where a new contract has been formed with the buyer with 3 rules: 1. new borrower must assume complete liability 2. the lender must accept the new borrower as a principal debtor and not merely as an agent or guarantor 3. the lender must accept the new contract in full satisfaction and for the old contract

4 - Recognize and describe bridge financing and why would it be used

Borrower will receive will receive a loan and grant a mortgage to a lender for a short period of time while long-term financing is being pursued *when buying a new property and their old property has not sold yet *borrower need immediate financing while bank is considering the borrowers credit worthiness and arranging security for long-term financing **Usually a higher rate than long term

5 - Understand the scope and effect of the federal interest act and criminal code and explain how they affect mortgages

FEDERAL INTEREST ACT: - no limit on the rate of interest that can be charged in a mortgage transaction - if interest rate is not set it defaults to 5% per annum - (6/7) If "Blended" payments (principle/interest, or interest only) are used it MUST BE CLEAR in annually or semi-annual rates - (7) mortgage document must contain the required statement about INTEREST if it does not, no interest may be charged. - (6) if the rate in the required statement is lower than the rate listed in the repayment clause, only the lower rate can be collected - bonuses for lenders is not interest it is considered principle - (8) deals with payment of interest on arrears.. - (8) indemnity clauses are not enforceable (require payment of 3 months of interest upon default) - (8) lender can NOT charge a higher rate of interest on monies owing after default. They can charge normal interest AND interest on the interest, but only if its stated that interest is payable - (10) right of the borrower to prepay their mortgage (prepayment penalty sometimes in the amount of the interest payable till end of mortgage term) UNLESS 1. borrower is an individual 2. mortgage says it is not payable until a time more than 5 years from date of mortgage 3. expiration of the 5 years has occurred (then only 3 months interest penalty) CRIMINAL CODE: - bonuses for lenders can be considered interest if the interest amount is considered criminal - it is an offence to enter into an agreement to receive interest at a criminal rate (allowed annual rate is 60%) - when calculating interest premiums, fees, and other $$ paid to mortgagee can go towards calculating overall interest - MORTGAGE FRAUD = (using funds from a mortgage for something other than what was agreed upon, concealing certain title information, to sell a property while knowing it has a unregistered mortgage against it)

7 - Explain how a lender assigns a mortgage, and the rights and obligations of the LENDER, the BORROWER, and the ASSIGNEE

HOW a lender assigns a mortgage: - lender can transfer interest in land and its rights to receive the money *without consent/prior notice to the borrower* - after assignment has taken place a written notice of the assignment has been given to the borrower by the assignee of the debt that they can now enforce the lenders rights Obligations of LENDER: - unless they fraudulently misrepresents the balance they will not be liable to the assignee of the borrower fails to repay debt - they can become a guarantor (guaranteed repayment), the assignee could then sue the lender if the borrower did not pay. - Guarantor's liability is removed if assignee makes a material alteration to terms of mortgage BUT.. sample clause for guarantors changes this rule and it is common practice Obligations of BORROWER: - can not deny the truth of what they disclosed to the assignee (ex. amount owing) - to pay lender until they receive the written notice to pay the assignee - pay assignee after they are assigned Obligations of ASSIGNEE: - to collect money from the borrower - to send the written notice of assessment - should always find out the amount owing on a mortgage from the BORROWER (even try to get them involved as a party

4 - Recognize and describe a vendor take-back mortgage and why would it be used

Involves the seller "taking back" a mortgage for the part of the sale price of the property. Basically upon selling a property instead of recieving full cash some of the purchase price is accepted as a Mortgage for the buyer the pay the seller over time. - seller of a property becomes a MORTGAGEE - Buyer of a property becomes a MORTGAGER - Vendor (seller) financing may be used where the purchaser does not qualify for financing through a conventional lender such as a bank or trust company OR - the vendor is willing to offer a lower interest rate than the bank - Private mortages do not have any limitations like maximum of 80% of property value or 95% if mortgage if insured - ALSO may not have to pay fees such as appraisal, survey, administrative expenses *RE agents must make sure their sellers our protecting themselves and the loans they are giving out. Should recommend they obtain legal advice*

2 - Explain the difference between a LEGAL mortgage and an EQUITABLE mortgage

LEGAL: - must be registered on title - enforceable security interests and legal effects against third party's EQUITABLE: - enforceable against the borrower, but not third party's - you can hand over a duplicate certificate of title as security on the loan (can not do transfers, mortgages, or long term lease without the duplicate - an agreement to grant a mortgage in the future - Disguising a mortgage as a transfer

4 - Recognize and describe a reverse annuity mortgage and why would it be used

Lender will make periodic payments to the borrower during the loan term. - at the end of the loan term the borrower will have to repay the balance owing by refinancing or selling the property *used typically upon retirement - this can supplement a homeowners income

1 - Explain the concept of a "Mortgage" and the differences between a "Mortgagee" and "Mortgager"

Mortgage: - an estate in land (not a loan) - a document evidencing a debt owed by the BORROWER (MORTGAGER) to the LENDER (MORTGAGEE) - registration with the land title office transfers the mortgagor's interest in the land to the mortgagee as security for the repayment of the debt (enforceable security interest in land) MORTGAGEE: - lender - provides loan to borrower - receives mortgage as security for the loan MORTGAGOR - borrower - obtains loan from lender - grants mortgage as security for loan

11 - Describe the steps involved in a foreclosure proceeding that ends in a ORDER APPROVING SALE and the rights of the parties involved

Once lender accepts an offer and they apply to the court to have the sale approved.. the court must see if the sale price is fair and reflects market value - must be able to provide evidence of marketing effors, # of showings, any issues w/ property, and current market conditions in that area - primary purpose of judicial sale is to maximize recovery for all parties involved - all previously interested parties will be notified of sale price and court date so there can be potential competing offers presented at the court date and usually is sold to highest bidder After acceptance of offer: - buyer recieves land free and clear of ALL CHARGES - purchase price is paid to lenders lawyers in trust and distributed in following manner (taxes/utilities > strata fees > RE commissions > payment of petitioners mortgage + court fees > into court to the credit of foreclosure proceedings) - any amount leftover that was paid into the courts can be applied to by other respondents that have interest in the property (owners, other mortgages, judgement holders) BUT alternatively they can appear at the approval of sale and request that surplus amounts be paid to them * after judicial sale (court forces owner sale) --> respondent still liable for deficiency after sale * after foreclosure (bank owned/sale by bank) --> respondent is not liable for deficiency

6 - Explain the scope and effect of relevant provincial legislation and how they affect mortgages

PART 8: Unconscionable loans = courts may take these factors into consideration.. pressure on the consumer, taken advantage of, transaction price was way off normal, there was little chance the consumer would be able to pay off the loan, terms were so harsh they were inequitable (**can the weaker party prove they were taken advantage of? if yes.. can the stronger party prove that the contract was fair? PART 5: Requires that a disclosure statement be given to individuals who borrow primarily personal, family, or household purposes: - 2 days prior to entering into credit agreement - once every 12 months if interest rate is floating - within 30 days if rate increases >1% - within 30 days if borrower misses a payment or a default charge being imposed by the lender - within 30 days after an amendment to credit agreement - within 21 days prior to the end of a mortgage term, if the mortgage is being renewed - every month if the loan is for open credit **Legislation to regulate persons who deal in mortgages (mortgage broker legislation).. who classifies as a mortgage broker and the exemptions from the registration requirements **Environmental Management Act (in scenarios where there is existing contaminated sites) people who are not liable include = purely financially related to site, does not add to contamination, appoints a person to investigate the contamination

10 - Describe the relief available to a lender in a foreclosure proceeding

STEPS FOR FORCLOSURE: 1. DEMAND LETTER - letter to borrower accelerating and demanding payment in short amount of time or else lender will commence foreclosure 2. PETITION & SUPPORTING AFFIDAVIT - lender starts foreclosure by filing with BC Supreme Court - all respondents (other mortgages) are notified 3. SERVICE of the PETITION and SUPPORT AFFIDAVIT - after everyone is served/notified the respondents can file responses to either consent, oppose, or take no position 4. PETITION HEARING - the lender schedules a court hearing for the petition and sends notice to all respondents - lots of different options for relief for lender outlined in #10 THEN.. 1) ORDER NISI - declaration that mortgage is in default - amount required to pay mortgage - redemption period (length depends on equity in property/security) A) CONDUCT OF SALE - if no equity in property = lender can apply for immediate conduct of sale - if there is equity in property = court will grant 6 months for conduct of sale THEN.. A1) ORDER APPROVING SALE - once lender accepts an offer on the property they will apply for order approving sale OR B) ORDER ABSOLUTE FORECLOSURE - following expiration of redemption period the court can apply for absolute foreclosure, but they will still require the lender to present evidence there is no equity in the property 2) IMMEDIATE ORDER ABSOLUTE OF FORCLOSURE - if no equity in property, the lender can apply for an immediate order absolute - if granted... the lender becomes registered owner of property, order for immediate vacant possession, equity of redemption ends (borrower has no right to property), and lender can not take further action All extra facts: **Example where there is 4 mortgages on a property** FORECLOSURE BY 1st MORTGAGE: - if payments on first mortgage are not made then lender has right to foreclosure and can remove all other interests which rank below the first mortgage (if property value is more than the first mortgage $$ owing then the other mortgages can apply to have this amount split between them)\ FORCLOSURE BY 4th MORTGAGE: - the only person a 4th mortgage lender can foreclose is the borrower (as they are only party that has less priority then them) Other Facts: - whichever lender applies to the land title office to register the mortgage first becomes the FIRST mortgagee - higher priority = more security - if a 1st mortgage is doing gradual payments to borrower and a 2nd mortgage gives written notice to 1st mortgage that they have registered on title and given money. The first mortgage must hold further installments until the 2nd mortgage agrees to a "priority agreement" otherwise the 1st mortgage further installments to borrower would be at a lower priority than the 2nd mortgage (more risk) - builders lien > 1st mortgage - employment standards act (wages owed to employees can be registered against employers land) > everything - unpaid property taxes/other owing's to local government > everything except the crown - strata property act (lien on land for strata fees) > mortgage (but less than builders/crown) - Workers Compensation act

3 - Describe the express terms of a mortgage

The Land Title Act: - only mortgage document that the land title act will accept for registration - Part 1 = parties, legal description of property, signatures of parties - Part 2 = all the other terms of the mortgage (BELOW) *Common Clauses in Land title act* - repayment clause - acceleration on default clause (all monies owed+interest will become immediately owed if default in payment, acts of waste diminishing land value) - Omnibus Clause (if mortgager misses payments - mortgagee can make payment on property taxes or strata charges and it will be added to mortgagers principle owed) Insurance: - Mortgagor will insure the building - Mortgagee (lender) requires proof of adequate insurance Repairs: - mortgagor will keep the land and the buildings in good condition and repair, and will not abandon or commit waste - some mortgages say the borrower cannot make alterations or improvements to the property without lenders consent Fixtures: - heating, refrigeration, gas, electric, plumbing, cooling, air conditioning equipment, and all wall-to-wall carpets, awnings, and blinds upon or hereafter placed upon or installed in the land shall be deemed to be fixtures and comprised in the freehold whether or not attached to land Lender Remedies: - gives lender complete discretion in deciding the most suitable remedy if the borrower defaults Advances: - clause gives the lender complete discretion in deciding whether to advance SOME or ALL of the money secured by the mortgage Costs: - The Mortgager shall pay to the mortgagee upon request all costs, charges, and expenses related to the MORTGAGE TRASACTION Charges in Priority: - this clause protects the lenders security position - Borrower must pay all strata, taxes, etc otherwise the lender may pay and add this amount to total owed principle - similar to OMNIBUS CLAUSE Further Charges: - borrower wont further borrow money against the property without lenders written consent - to provide further protection to the lender against a potential claim by subsequent mortgages or charge holders Strata Property Clause: - mortgagor must pay all strata fees and perform all duties owed to strata - Lender (mortgagee) can obtain the right to vote in the strata corp. in matters related to insurance, maintenance, finance, or other matters affecting the security of the mortgage - mortgagee also has the right (not obligation) to pay levies, maintenance, or judgements owed to strata that are not paid by owner (*as they are priority over mortgage*) Guarantor: (co-signor) - used to create a seperate personal covenant of a third party in addition to the borrowers personal covenant to pay - gives additional security to the lender (mortgagee) - usually required for borrowers income or assets are insufficient *COVENANTOR* = primary debtor and is just much as responsible for the loan as the main party *GUARANTOR* = is a 2nd debtor and will only be responsible for repaying the borrowers loan after the lender has exhausted every available remedy against the primary debtor Due on Sale Clause: - must pay the full mortgage once you sell the property - this can include a prepayment penalty Portability: - this clause allows the borrower to take their mortgage to a new property, thus allowing the borrower to maintain his or her current favorable interest. - if more money is required for new house a mixed rate of "new" and "old" rates will be used depending on the addition $$ required

3 - Describe the implied terms of a mortgage

The Prohibition Against CLOGGING - borrower cannot be prevented from eventually redeeming their property - even if there are terms saying they can't they are not enforceable Stipulations for Collateral Advantage - mortgage containing terms giving the lender advantages in addition to the principle and interest payments - if collateral advantage which extend past the redemption date of mortgage they are void - If collateral advantage was meant to be a part of some overall independent bargain = enforceable, if a term in a mortgage = not enforceable past mortgage end The Principle of Good Faith and the Duty of Honest Performance: - duty to act honestly in the performance of their contractual obligations

11 - Describe the steps involved in a foreclosure proceeding that ends in a JUDICIAL SALE and the rights of the parties involved

if short redemption time lender will request for IMMEDIATE CONDUCT OF SALE.. if longer redemption time they will have to wait until closer to end of redemption period to apply - redemption period depends on if there is owner equity on the property OR if there is more owed on the property than its value likely an immediate conduct of sale is warranted - if the borrower is in over there heads then the lenders can apply for IMMEDIATE ORDER ABSOLUTE ^this allows the lender to market and list the property on MLS, but any offers have to be approved by the courts