A boutique Toronto law firm serving
clients across Canada since 1987

Oct 03, 2021


In the previous Post LVIII I continued a review of mortgage statements, looking at mistakes that mortgagees sometimes make in discharge statements. This post examines the fallout from these errors.

When a mortgage secures both a mortgage loan and a line of credit, for example, every once in a while a mortgagee will issue a discharge statement that only includes the amounts owing under the mortgage loan, and will make the mistake of not including the line of credit debt on the discharge statement.

No doubt, some mortgagors will want to correct the error and ask her or his lawyer to get a corrected discharge statement. But there are always a few who will try to take advantage of an error of this nature, and only pay to the mortgagee the exact amount identified in the discharge statement.

First and foremost, the law is clear, when a lender forgets to include on a discharge statement a loan facility secured by the mortgage, the missing loan amount remains outstanding and continues to be due and owing by the mortgagor, who cannot take advantage of the mortgagee’s mistake to her or his benefit. But when a new mortgage has been placed on the property, or if the property was sold to that there are new owners, the mortgagee’s error results in the forgotten debt becoming unsecured. The mortgagee must discharge its mortgage from title if an innocent third party (such as the new mortgagee or the new owner) relies on the erroneous discharge statement to its, her or his detriment.

Of course, this seems to be a fair compromise. The mortgagor continues to owe the money borrowed, even though that facility was not included in the discharge statement. But innocent third parties that relied on the discharge statement amount can force the unpaid mortgagee to discharge its charge. That is why the purchaser’s lawyer in a real estate purchase and the lawyer for the new mortgagee in a refinance ought to be the ones who request the discharge statement from the mortgagee intended to be paid out. That direct connection of requesting the discharge statement helps set up the reliance that the new buyer or the new mortgage will want to employ.

Next blog will look at a recent file that I had on my desk - where I collected an unsecured debt from a mortgagor who chose to take advantage of a lender's discharge statement error (the error being the failure to include a 2nd loan facility in a discharge statement). This deceit on the mortgagor's part did not turn out very well for the mortgagor, indeed. As always, this blog is intended for information purposes only. It is not legal advice and cannot be relied on as such. Nor is it a substitute for hiring your own legal counsel, who will be an essential member of your power of sale and mortgage default team. And lastly, this blog is just my opinion. I reserve the right to change my mind. And I reserve the right to be wrong.

Be well and stay healthy.