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Nov 29, 2021


In the previous Post LXII I reviewed the privacy issues arising when a prior mortgagee receives a request for a mortgage statement from a third party (such as an execution creditor) who does not have the written consent of the home owner authorizing the release of private information. In this post, I will examine why some third party mortgage financiers (who repay a prior mortgage on title) ask for and take an assignment of that prior mortgage rather than register their own new mortgage and accept a discharge of that prior mortgage.

We all are aware of the typical mortgage refinance scenario. A new lender comes along, asks for a discharge statement from the existing mortgagee, advances funds to repay that mortgagee and then takes a new first change to secure the new refinanced debt. But sometimes, the new financier asks for an assignment of that prior mortgage, rather than a discharge. Why?

This happens most often when a new mortgagee is refinancing a prior registered mortgage which has priority over subsequent mortgages, liens or writs of execution. If the prior mortgage is discharged, the new financier cannot get the same priority that the old mortgagee enjoyed unless the subsequent mortgagees, lien holders or execution creditors postpone and subordinate their interests. And that is not likely to happen.

The work-around to refinancing a first charge when there are subordinate registrations on title is for the new financier to take an assignment of the existing (prior ranking) charge. When the new mortgagee takes an assignment of the charge being paid out, the new mortgagee assumes the same priority that the prior charge enjoyed. However, the new financier is not a ‘purchaser for value without notice’ and as such, does not take free and clear of the equities. This means that the new financier takes over the loan and security that the prior mortgagee had. Subject to any defense or set off to which the first mortgage was subject.

By taking an assignment of the existing first charge, the new financier steps into the shoes of the mortgagee who is being repaid, and leap-frogs over all subordinate mortgagees, lien holders and writ holders. Needless to say, the new lender cannot advance new money to the homeowner, as any new funds being advanced would not have priority over the existing encumbrances. The new financier can only repay and take over the existing debt.

The next post will look at the rules imposed on mortgagees to assign their security rather than discharge their security on a payout. And 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.