Amazing! Just as I write about old mortgages causing trouble, another example turns up.

Our clients were selling. A review of the title showed three mortgages to payout. Each mortgage was registered at a different time over the last 20 years. As seller's lawyer I had to promise the buyer's lawyer that I will get rid of any old financing, but to make that promise, I needed assurance from the lender.

As usual, we wrote to the lender requesting payout statements. The first mortgage registered on title was a plain, vanilla, normal mortgage and we received the proper payout statement from the lender's payout department in Toronto, no problem.

The second and third mortgages secured lines of credit (“LOC”). The second mortgage secured an original LOC of $200,000. The third mortgage secured that same LOC. Now the LOC is up to $350,000 but with the lender's same internal reference #.

Here's where it got sticky and confusing. 

LOC matters for this lender are handled at the branch level. On review, they were pretty sure that there was nothing left owing on the original, smaller LOC. Anything owing had been rolled in and transferred to the larger LOC. But, when they asked their internal system for payout confirmation, we received a payout statement for the higher, third mortgage registration.

The lender was unable to find an account number to match the registration number of the second mortgage. We were essentially requesting discharge information for an LOC that did not exist. The branch sheepishly confessed the first line of credit registration should have been discharged when the LOC limit was increased, and a new (third) mortgage was registered against title. 

In the end, we had to get a letter from the branch manager confirming that there was nothing owing on that original, smaller LOC and that they would give us a discharge of that small LOC mortgage along with a discharge of the larger, operational LOC.

Of course, it was a short closing and it took 4 business days to get the branch to finally figure out what was going on and give us the proper payout promises. This is another example of why you review a title and ask questions. Typically, there would be no reason to have three mortgages with the same lender on a title, so that would be your first clue to poke at this a little bit more.

Our seller was very stressed and spent a lot of time at the branch trying to figure out why the mortgage securing the smaller LOC had not been discharged. It should have happened when the larger LOC was put in place. No answer from the branch; they just missed it.

This comes up more often than you would think.

For seller's Realtors: When listing the property, check that title carefully. Ask the seller if their mortgage(s) has been paid off. In this case, why do they have three mortgages? Show them the title and tell them they have to speak to their lender for an answer.

For buyer's Realtors: You won't normally need to worry about this. The seller's mortgage(s) is the seller's problem. But, if there are three mortgages, what if they were all active? Is there not enough coming from the sale proceeds to pay out all three? That would be a problem. It's worth a mention to the seller's Realtor, considering that your buyer client might have a delayed closing that isn't their fault,

For both seller's and buyer's Realtors: As we like to remind you, when things go sideways, somehow there is always a tinge of "it's your fault" even when it isn't.

Protect yourself.

Cheers,

Barry

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