Residential Mortgage or Residential Agreement for Sale - Limitation of Liability Under #125

By Gerry Neely
B.A. LL.B

The recession of the early eighties left many purchasers of homes unable to make the monthly payments under the mortgages they assumed when they bought their homes, or to sell their homes at a price sufficient to pay off the mortgages. In the resulting foreclosure actions, the mortgagees almost invariably sued the former owners who had taken out the mortgages, making the former owners aware of the unpleasant fact that their personal liability to the mortgagees continued after the sale of their homes.

This continuing liability may end as a result of amendments to the Property Law Act which will become effective December 1, 1988.

Some mortgage lenders and some vendors who sold properties by way of Agreements for Sale may lose their right to sue on the personal covenant of the mortgagor or purchaser respectively, after the sale of the mortgaged property by the mortgagor or purchaser.

The mortgagor or purchaser who may benefit from this legislation is one who has a residential mortgage or residential agreement for sale registered against the residence in which the mortgagor or purchaser resides. The purchaser or mortgagor can only benefit if the agreement for sale or the proceeds of the mortgage were used: (a) to acquire the residence, (b) to make improvements to the residence, (c) to make expenditures for family or household purpose, or (d) to refinance for any of the purposes in paragraphs (a), (b) and (c).

(For easier reading in the balance of this column mortgagor includes a purchaser under an agreement for sale and in addition, includes a subsequent purchaser of the residence who assumed the mortgage but who is now selling the residence; mortgagee includes the vendor under an agreement for sale; mortgage includes an agreement for sale; residence means one against which a residential mortgage or residential agreement for sale is registered.)

Following the sale of the residence, the mortgagee must demand payment of the balance secured by the mortgage within three months of the expiration of the existing term of the mortgage. If the mortgage is payable upon demand, then the demand for payment must be made within three months after the mortgagee has received written notice of the transfer of the residence. If the mortgagee fails to do so, the mortgagor is no longer personally liable to the mortgagee.

A mortgagee cannot insist that as a condition of the granting of the loan or sale, the mortgagor must waive the benefits referred to in the preceding paragraph. However, the original parties to the mortgage can waive these benefits after the transfer of the residence has occurred.

Personal liability also ceases if the mortgagee approves in writing of a purchaser of the residence. This is an important change, but to take advantage of it, the mortgagor must ask the mortgagee within three months of the date of transfer of the residence, to approve of the purchaser. The mortgagee is entitled to have reasonable financial information concerning the purchaser and a reasonable fee to cover the costs of obtaining a credit report and handling costs.

If the mortgagee ignores the request or in the opinion of the mortgagor unreasonably refuses approval, the mortgagor may apply in the Supreme Court of British Columbia for an order that approval be given. If the Court agrees, the mortgagor is released from personal liability.

For those who haven't given up, this subject is continued in the next column.

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