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American College of Mortgage Attorneys — Partner with the Best®

Formed in 1974, the American College of Mortgage Attorneys (ACMA) is comprised of 500 lawyers in North America who are experts in mortgage law.

Canada

British Columbia

British Columbia (BC) uses a land title registration system that is modelled after the Australian “Torrens System”. The hallmarks of the Torrens system are twofold: first, the system provides a statutory guarantee that the registered owner holds “indefeasible” title to the land; and second, individuals may rely on the register to give conclusive evidence of good title without conducting a historical search of the chain of title. This provides the public with a sense of certainty of title. The British Columbian Torrens system does, however, have a few differences from its Australian parent. The BC system provides a qualified guarantee of indefeasible title. The Land Title Act sets out a number of exceptions to indefeasible title. R.S.B.C. 1996, c.250. The most notable of these exceptions is where a registered owner has participated in fraud. The exception allows a person to recover land from the fraudulent party, so long as they are still the registered owner of the land.

FORM

Under the Land Title Act, all security instruments creating a security interest in land or any interest therein must be registered in order to remain operative and to obtain statutory priority. Among accepted instruments are mortgages, assignments of rents, security agreements, debentures, and trust instruments. Because security instruments are registered on an electronic system, they must be created using specific forms prescribed in the regulations. The parties may attach relevant documents to supplement the prescribed forms.

SECURITY INSTRUMENT USED

British Columbia is comprised of a number of land title districts, each of which is under the jurisdiction of one of three Land Title Offices. Per &sect;&nbsp;238 of the Land Title Act, a mortgage cannot be registered unless it has been completed and witnessed in accordance with the Act. Any document or plan that is related to a security is registrable so long as the application contains: “Part 1”, the appropriate form prescribed by the regulation; and “Part 2”, a set of prescribed, express, or filed standard mortgage terms.

RECORDING REQUIREMENTS

Mortgages are generally submitted for registration using Form B. If there are any additional terms and conditions, they are to be attached in “Part 2”. Alternatively, the Form B can refer to standard terms that have already been filed. The discharge of a mortgage is filed at the Land Title Office using Form C. Assignments of rents are most often included in Form B, but where they are separate from the security instrument then a separate Form C must be registered. General security agreements and other agreements creating security interests in personal property are registered under the Personal Property Security Act (PPSA) in the Personal Property Registry. R.S.B.C. 1996, c. 359.

FORMS USED

Generally, where there is another instrument that prevents registration (for example, a caveat or a certificate of pending litigation), the title will be frozen and no new registration may take place until the registrar is convinced that an interest may exist. The exception is where the transfer is being made subject to legal proceedings. The registrar will permit registration of an instrument when the instruments on title are subleases, judgments, certificates of builders' liens, or other certificates of pending litigation. In BC, title that is adverse to the title of the registered owner cannot be acquired by any length of possession. Land Title Act, &sect;&nbsp;23(3). The register will not permit such an application unless permitted to do so by statute. Land Title Act, &sect;&nbsp;171.

UNUSUAL TREATMENT OF STANDARD PROVISIONS

A mortgage may secure further advances, and the mortgagee will have priority for those further advances over subsequent mortgagees, provided that the mortgage expressly provides that further advances are contemplated or the mortgage requires that the mortgagee make those further advances. That priority rule does not, however, extend to subsequently registered judgments. With respect to security interests in personal property, a security agreement may provide and secure future advances. The registration of a financing statement does not constitute constructive or implied notice to third parties. Per &sect;&nbsp;35(5) of the PPSA, the rules applicable to all security interests apply to future advances as well. As a general rule, priority is determined by the order of registration, possession or perfection. Where a security interest is unperfected, priority is determined by the order of attachment. In addition, a perfected security interest has priority over an unperfected one.

SECURING FUTURE ADVANCES

A mortgage of land and a security agreement creating a security interest in personal property can each expressly provide that they secure protective disbursements incurred by the mortgagee or secured party to protect the land or personal property collateral and such provision will be effective.

SECURING ADDITIONAL ADVANCES TO PROTECT THE COLLATERAL

Both corporations and individuals may, in general act as trustees under deeds of trust, provided that the trustee is acting in a purely mechanical role as such and is not otherwise carrying on trust business in BC.

CORPORATE OR INDIVIDUAL

There is no residency requirement for trustees under a deed of trust, but where a corporation is not registered in BC, it must provide proof of incorporation in its home jurisdiction and must also obtain a certificate of good standing from regulatory authority in that jurisdiction.

RESIDENCY REQUIREMENT

The foreclosure process begins when the mortgagee sends a demand letter to the mortgagor. The letter constitutes the start of a time period in which the mortgagor must pay a specified amount to reinstate or redeem the mortgage, or risk foreclosure. If the terms of the demand letter are not met or there is any dispute as to the amount owed, the mortgagee may file a foreclosure petition in the BC Supreme Court and register notice of that proceeding against the title to the relevant property. The mortgagor must file a response and an affidavit within 21 days after being served with the petition. The matter will then proceed to a hearing, in which the court will issue an “Order Nisi” and grant judgment against the mortgagor for the mortgage debt. The Order sets out a redemption period in which the mortgagor must redeem the mortgage by refinancing, sale or some other means. Once the redemption period expires, the mortgagee may obtain an “Order Absolute”. This is usually a last resort for the mortgagee, and will only be issued where: <ol>
 <li>The property value is equal to or above the amount owed;</li>
 <li>The mortgagor is judgment proof; or</li>
 <li>There are no offers on the property in the process of a court supervised sale.</li>
</ol> Once the court grants an Order Absolute the mortgagee becomes the registered owner of the property and the mortgagee has no further rights against the mortgagor to claim a deficiency. Alternatively, the mortgagor or the mortgagee can request an Order for Conduct of Sale. If the value of the property, as established by an appraisal, exceeds the mortgage debt, the mortgagor will typically be granted conduct of sale and will list the property for sale, with any offers to be approved by the court. If the mortgage debt exceeds the value of the property, the mortgagee may be granted conduct of sale. When a buyer makes an offer to purchase the foreclosed property and the subject period has closed, the offer is presented to the Master. The Master will inquire if there are any other parties in the courtroom who wish to make an offer on the property. If there are no other offers and the single offer made is at market value, the Master will approve the sale. There may be other offers. If this is the case, the proceedings cease and all parties must resubmit their offers, subject-free. Once all of the offers are submitted, the Master will review them and approve the highest offer.

BRIEF DESCRIPTION OF PROCEDURE

The standard redemption period for residential mortgages in British Columbia is 6 months. For commercial mortgages the period will vary depending upon the appraised value of the property compared to the mortgage debt, and other factors. Legally, the redemption price cannot be higher than the total amount due under the mortgage. It is also impermissible for the mortgagee to raise the interest rate once the mortgagor has defaulted and entered into the redemption period.

REDEMPTION PERIOD & PRICE

The court can reduce the redemption period as it sees fit, depending on the circumstances at hand. The key to determining the length of the redemption period is whether or not there is equity in the property. Where the borrower can demonstrate that there is equity, the court will grant an extended redemption period. A recent trend has been for the courts to set the period longer than 6 months. This is especially the case if the property has commercial uses, or if amount owed is equal to or lower than the value of the property. Conversely, where the mortgagee can demonstrate that the mortgagor has caused damage to the property or has abandoned it, the court will shorten the redemption period.

REDUCTION OF REDEMPTION PERIOD

In extenuating circumstances, a court may set a redemption period of merely a day or two, but it is not common practice for BC courts to waive the redemption period altogether.

WAIVER OF REDEMPTION

Where an Order Approving Sale is granted and the proceeds from the sale do not cover the monies owed, the mortgagee may enforce its judgment against the mortgagor for the remaining amount. Alternatively, if the mortgage was insured, the insurer may enforce the judgment. A judgment against the mortgagor is valid for 10 years, after which the mortgagee can renew the judgment.

DEFICIENCIES

Residential tenants of a property that is being foreclosed upon are afforded minimal protections. The mortgagee will often serve the tenant of a foreclosed property with the Petition and Affidavits prior to the proceeding, thereby making them a respondent in the action. This can occur on short notice because notice periods that were once set out in the Residential Tenancy Act no longer apply. SBC 2002, c.78. Where the court approves an Order for Conduct of Sale, the tenant must move out by the possession date unless the purchaser of the property agrees to lease the property. In addition, the tenant must comply with the sales agent's requests to enter the property and show it to potential buyers. Where the court makes an Order Absolute, the property ceases to be owned by the mortgagor and the mortgagee will decide the terms on which the tenant must vacate the property. The mortgagee may also request a Receivership Order from the court, the effect of which requires the tenant to pay rent to the receiver, rather than the mortgagor landlord.

EFFECT OF FORECLOSURE ON LEASES

Mortgages often contain a Power of Sale clause that gives the mortgagee the right to take possession and sell the property upon the mortgagor's default. Such an extra-judicial sale process is not enforceable in BC—the foreclosure process supervised by the court must be followed.

POWER OF SALE NOT EFFECTIVE

Under &sect;&nbsp;347 of the Criminal Code of Canada, entering into an agreement to receive payments of more than 60% per annum calculated on the total value of credit provided is a criminal offense. R.S.C. 1985, c.46. (Can.). The mortgagor must use actuarial evidence to establish (on a balance of probabilities) that the interest rate was over 60% at the date of inception of the agreement. Where the mortgagor is successful in bearing the burden of proof, &sect;&nbsp;347(3) of the Criminal Code deems the mortgagee to have knowledge that the payment was received at a criminal rate. This presumption is rebuttable only by evidence to the contrary. Pending amendments to the Criminal Code will reduce the maximum interest rate from 60% to 30% plus the then current Bank of Canada overnight interest rate. At present the coming into force date of those amendments is not known. While the offense is enumerated in the Criminal Code, it can also affect civil proceedings. In civil enforcement proceedings, courts may accept a mortgagor's defence that payments exceeded the usury ceiling. Alternatively, the court may deprive the mortgagee of part or all of its anticipated return.

USURY CEILING

In determining what is included in the calculation of the interest rate, courts generally employ a substance over form approach. The statutory provisions use a wide definition of “interest” to include essentially any amount that the mortgagor must pay in order to obtain the mortgage monies. In a few cases, courts have held that finder's fees, discharge fees, and letters of credit are not considered “interest.” Instead, they are characterized as a separate agreement from that of the mortgage, or not considered to be part of the credit advanced until it became payable. The rationale is that when combined with other fees that constitute interest payments, the mortgagor may have had to make payments of more than 60% of the total mortgage amount, but the interest that the mortgagee received was less than 60%.

USURY EXCEPTIONS

Per &sect;&nbsp;43 of the PPSA, financing statements are to be registered electronically using a BC Online account.

LOCATIONS FOR FILING

The Personal Property Security Act (PPSA) applies to any transaction that creates a security interest in personal property, regardless of its form or who has title to the collateral. Some examples of security agreements include: chattel mortgages, conditional sales, floating charges, pledges, trust indentures, trust receipts, assignments, consignments, leases of personal property for a term of more than one year, trusts, and transfers of chattel paper if secured by payment or performance of an obligation. Among other things, interests in insurance, wages, or contracts of annuity are excluded from the scope of the PPSA. The PPSA recognizes that a security interest may attach to personal property that is, or becomes, a fixture at law. Such an interest can be perfected by filing a “fixtures notice” in the Land Title Office against the title to the land. If the goods are already affixed to the land at the time that the security interest is created, the filing of the fixtures notice will create priority in favour of the secured party over subsequently created interests in the land. If the security interest is created prior to the goods becoming affixed to the land, the filing of the fixtures notice will result in the security interest of the secured party having priority over both existing interests in the land and future interests in the land.

SECURITY AGREEMENTS AND FIXTURE FILINGS

In general, guaranties are a matter of freedom of contract and guarantor defenses are limited. Guaranties obtained by lenders typically contain broad waivers of defenses by the guarantor, and those waivers are often upheld. It is normal practice to have a guarantor acknowledge in writing any amendment to the underlying transaction so as to prevent the guarantor from subsequently arguing that the guarantor was prejudiced by the amendment.

GUARANTY

The Limitation Act provides a general limitation period of 2 years, and an ultimate limitation period of 15 years (SBC 2012, c.13 &sect;&nbsp;31). There are a number of exceptions to the basic 2-year-limitation period. Most notable are the exceptions for civil claims that enforce a monetary judgment, and actions that have limitation periods set by other statutes.

STATUTE OF LIMITATIONS PERIOD

Under &sect;&sect;&nbsp;23-25(2) of the Builders Lien Act, a lien can be released via application to the court. SBC 1997, c.45. If an action has been commenced to enforce the claim of lien, the cancellation must occur by notice of application. If an action has not been commenced, the cancellation can be done by petition. The mortgagee must pay the lesser of the total amount of the lien or the required holdback. The court will then conduct a summary determination of holdback liability under &sect;&nbsp;23 of the Builders Lien Act. Barring any disputes with sub-trades' Builders liens, the lien is released. Where the lien is disputed and the mortgagor provides security that is less than the amount of the lien claim, the court cannot release the lien unless it is “plain and obvious” that the claim will not succeed. West Fraser Mills Ltd. v. BKB Construction Inc., 2012 BCCA 89 (Can., B.C.). When this occurs, it is wise for the mortgagee to ensure that the Order grants liberty to vary the amount and type of security posted, especially where there are multiple lien claims involved. Where a lien is invalid because it was filed against the wrong land, includes the wrong date, or where legal action was not initiated in time, &sect;&nbsp;25 of the Builders Lien Act sets out the procedures for releasing the lien. The mortgagee must file a certified copy of the Order, the stamped Form 17, and a registrar's certificate of payment into court with the Land Title Office. Where no Order has been obtained, the mortgagee must file the relevant documentation to illustrate the process of what occurred. Examples of documents that are included in practice are: Statutory declarations; Dismissal certificates; Discontinuance certificates; Solicitor's letters requesting the cancellation of the certificate of pending litigation; Form C (discharge of lien) Finally, it is good practice to conduct a post-cancellation land title search and obtain a copy of the title certificate.

REQUIREMENTS FOR RELEASE OF LIEN

British Columbia is not governed by any homestead legislation.

HOMESTEAD ISSUES

British Columbia is not a community property jurisdiction.

COMMUNITY PROPERTY

British Columbia no longer levies a documentary stamp tax. Instead, this tax is included in the filing fees charged by the Land Title Office upon registration.

DOCUMENTARY STAMP TAX

Transfer tax is paid when an application to register a transfer of title is made at the Land Title Office. The Property Transfer Tax Act requires that tax be levied on any right, title, or estate of any tenure, as well as improvements made to the property (R.S.B.C. 1996, c.378). The tax is assessed based on the fair market value of the property in question. This is determined by the purchase price, or by the property assessment value on July 1 of the previous year. The applicable tax rates are: 1% on the first $200,000 plus 2% on the difference for any property worth more than $200,000 plus 3% on the difference for any property worth more than $2,000,000. There are a number of exemptions that exempt all or part of property transfer tax. Taxpayers may appeal Transfer Tax assessments, penalties, or denials of exemption claims. The first level of appeal is to the Minister of Finance and must be made within 90 days of the receipt of the Notice of Assessment. The second level of appeal is arbitration or an appeal to the Supreme Court of British Columbia.

TRANSFER TAX

Generally, where an agreement specifically provides for a choice of law of a particular jurisdiction, the courts of BC will respect it, however, the effectiveness of a mortgage and the procedural issues relating to enforcement of the mortgage will be governed by the laws of BC in any case where the land is situated in BC.

ENFORCEABILITY OF AGREEMENTS AS TO CHOICE OF LAW

Where the mortgagor is insolvent and the mortgagee intends to collect on the debt, the mortgagee must give 10 days' notice before acting to enforce the debt, as required by the federal Bankruptcy and Insolvency Act. If the terms of the relevant security documents so provide, a receiver may be appointed by a secured creditor to manage and realize the assets of the mortgagor. In most cases, however, the creditor will want the receiver to be appointed by the court.

RECEIVERSHIP

Mortgage brokers are subject to qualification and licensure under the Mortgage Brokers Act, but no legislation exists under which lenders must be licensed and qualified. R.S.B.C. 1996, c.313. A corporation may need to prove its incorporated status in order to register a loan (see “Residency Requirement” above).

LENDER QUALIFICATION AND LICENSURE

A registered mortgage need not be signed by the lender. However, the lender must provide its signature on any modifications made to the terms of the agreement. The reasoning behind this requirement is that the Land Title Office must ensure that the party whose interest is charged has signed the agreement. The fact that the lender has advanced the proceeds to the borrower constitutes de facto acceptance of the mortgage terms. In the case of modifications, a signature is the only way to verify the lender's acceptance of the new terms.

MODIFICATION

<ol>
 <li> INCEPTION OF LIEN: Per &sect;&nbsp;20 of the Builders Lien Act, a lien must be filed no later than 45 days after a certificate of completion is filed or the contract is abandoned or terminated. If the property is a highway as defined in &sect;&nbsp;1.1 of the Act, if it is Indian land, or if it is owned by the Crown, the Act does not apply. Anyone who engaged the mortgagee or whom the mortgagee supplied material to will become indebted to them, therefore the exact details of the parties involved and the construction completed must be gathered in order for the claim of lien to be valid. Relevant information includes: the extent to which the project has been completed, whether any deficiency lists have been prepared, whether there are any allegations of negligence, and whether an occupancy permit has been issued. In preparing the lien, specific attention should be paid to ensure that the circumstances warrant a lien, per &sect;&nbsp;2 of the Act. It is important that the amount of claim on the lien be established accurately, because it cannot be subsequently increased in pleadings. It should also be noted that the claim amount cannot include interest on the amount owing.</li>
</ol> The claim of lien is to be prepared using Form 5 and submitted to the Land Title Office. Under the current legislation, an affidavit is not required. <ol>
 <li> PRIORITY AS TO REMOVABLE FIXTURES: Where a builder's lien involves a claim over trade fixtures, registration of the mortgage in the PPSA registry protects the claim for the monies owing. However, whether or not a fixture is “affixed” plays an important role in the claim for priority. This is a factual determination that is made by the courts. Thus, without a favourable determination, registration bears no importance.</li>
</ol> Before filing the lien, a Land Title Office search should be conducted to determine whether there are any charges, encumbrances, or other mortgages or agreements for sale registered on title. Additional searches to determine whether there is personal property registered, whether there are additional court proceedings, and whether bankruptcy is an issue are also helpful to determine priority. Under &sect;&nbsp;32 of the Builders Lien Act, a mortgagee who has registered its mortgage agreement with the mortgagor has priority over the amount secured by a claim of lien.

LABOR AND MATERIALMEN'S LIEN CLAIMS - PRIORITY ISSUES

In light of the indefeasible title provisions of the BC Land Title Act, title insurance was not commonly used in BC. In recent years, it has become more common to use title insurance, principally as a means of avoiding conducting extensive off-title searches for unregistered statutory liens, which may take priority over the interest of a registered mortgagee. &nbsp;

British Columbia

Mortgage Law Summary

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Mortgage Law Summary for British Columbia

British Columbia

Mortgage Law Summary

Continue reading theMortgage Law Summary for British Columbia

Continue reading the
Mortgage Law Summary for British Columbia