Sellers Take Back Part II of Mortgage #262
By Gerry Neely
As anyone who has recently signed a mortgage will know, computerization of the Land Title Office has resulted in a mortgage consisting of two parts. Part I contains the particulars of the parties, legal description, principal amount of the mortgage, the interest rate and how and when the principal and interest is to be repaid.
Part II contains contractual standard mortgage terms, which define the obligations and rights of the parties with respect to a number of matters, such as insurance, repairs, and when default occurs. Mortgage companies with a high volume of mortgage registrations will generally file their Standard Mortgage Terms in the Land Title Office. This avoids the necessity of attaching those terms to any subsequent mortgages they register. As alternatives to this, the parties may agree to use the Express Mortgage Terms they agree upon, or the plain language Prescribed Standard Mortgage Terms (the LTO Terms) that are provided under the authority of the Land Title Act.
The usual residential Contract of Purchase and Sale clause for a seller take-back mortgage is generally limited to the financing terms. It has always been a question whether the contract might be unenforceable because of the uncertainty of what mortgage terms should be included in Part H.
Generally, a law firm will use the LTO Terms unless it has filed its own standard mortgage terms. The practice of using the LTO Terms appeared to be safe when it was approved by a Supreme Court judge in 1995, in a case where a seller who tendered a take-back mortgage, which included the LTO terms, was successful in obtaining an order for specific performance against a defaulting buyer.
The unsuccessful buyer appealed and the Court of Appeal overturned the trial judge's decision that the standard terms to be used would be the LTO terms. Did the buyer win - no, because the Court of Appeal also said that a mortgage can be valid, even if few of the usual contractual terms are included within it. It said that the essence of a mortgage is the financial terms: the principal amount; rate of interest and to avoid uncertainty; the interest calculation period; the monthly payment; the term; plus implied terms for payment, quiet enjoyment, and the right to redeem.
Since none of the other contractual standard terms, including the covenant to insure, are essential to a mortgage, this means that Part II could be just one page. While normally brevity is eneficial, in this case, it may be detrimental to the seller. As a court in an earlier case said, the absence of clauses for the treatment of taxes and insurance, or the consequences of default does not make a mortgage void for uncertainty, but does mean that the mortgagee will not have their benefit.
The lack of contractual terms might work to the advantage of the buyer, although that is difficult to forecast. For the past 100 years or so, our mortgages have always contained contractual terms of one sort and another. No one in recent time has been asked to consider how the law would apply without these terms.
The following clause could be added to the usual take back mortgage clause, to ensure that the more familiar contractual mortgage terms form part of the mortgage.
"Part II of the mortgage shall contain the Land Title Act Prescribed Standard Mortgage Terms unless the parties agree otherwise."1
In these days of open mortgages and with financial institutions vying for business, the advantages to borrowers who have mortgaged their homes of being able to assign their mortgages to other financial institutions, rather than remortgaging, are many. Apart from avoiding the legal, appraisal, and survey costs associated with remortgaging, the financial institution may agree to pay the costs of the assignment to it of the mortgage.
What are the mortgagor's rights when the mortgagee refuses to assign the mortgage, but instead demands that it be paid off and discharged?
The mortgagor's right to insist upon the assignment is found in Section 15 of the Law and Equity Act. The substance of this section is that if the mortgagor is entitled to redeem the mortgage, he is equally entitled to direct the mortgagee to assign the mortgage to whomever the mortgagor names. Therefore, as long as the mortgage is open and not closed, the mortgagor can compel the mortgagee to assign the mortgage debt.2
|Scully v. Cerney, B.C.C.A, Vancouver Registry #CA021303, Reasons for judgment, August 14, 1996.
|Great West Life Assurance Company v. Rix, 59 B.C.L.R. 75, Royal Bank of Canada v. Bate, 22 B.C.L.R., (2nd), 31.
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