As always, Hendrix Law is working to protect our lenders from claims made by government authorities, namely, Revenue Canada, when exercising their super priority, now even over a discharged mortgage. This coverage will be added to all residential and commercial lending policies by our office.
Priorities under the Seniors’ Property Tax Deferral Act and the Seniors’ Home Adaptation and Repair Act
Seniors Home Adaptation & Repair ActSeniors’ Property Tax Deferral ActSeniors’ Property Tax Deferral Act Seniors Home Adaptation & Repair ActBoth of these pieces of legislation provide assistance for Seniors who either can not pay their property taxes as they become due and payable or require assistance to cover the costs of repairs, renovations or adaptations that are reasonably necessary for the maintenance, structural integrity or energy efficiency of the residence or for the health, safety or mobility of the occupants.
Each piece of legislation provides that the Minister can file a caveat, in the land titles office, against the certificate of title for the eligible residence for the loan. Each piece of legislation also provides that upon “the registration of a caveat,.. the charge has the same priority as a mortgage under the Land Titles Act and may be enforced in the same manner as a mortgage”.
Each piece of legislation provides that the debt is payable in full on the “date of the transfer or sale of the residence in respect of which the loan was made”.
So what does this mean when you seen a Caveat under the Seniors’ Property Tax Deferral program or the Seniors’ Home Adaptation and Repair program registered on title to a property you are lending on?
If it is registered on title prior to your advancing funds on your mortgage, you must require the charges to be paid out in full from your mortgage funds as these charges will form a financial property to your mortgage.
If it is registered on title after you have advanced funds, it technically does not form a priority to your mortgage as it is registered with the same priority as if it was a subsequent encumbrance. The difference is that it must be paid off in full with the sale of the property.
Accordingly, if you are foreclosing, you must consider the balance owing on those Caveats, like you would regular property taxes, as forming a priority to your registered mortgage on payout. If the Borrower is selling, they have to sell for sufficient funds to clear all registered financial encumbrances from title. If they don’t have sufficient funds to clear title, but are still selling at what you consider to be market value, you are going to have to treat these Caveats as a priority for payout purposes and decide if you are going to potentially accept less on your charge or foreclose if they can’t complete the sale.
Please note you should be pulling updated titles when you are offering renewals to borrowers that are seniors. These charges affect your loan to value on the property and should be strongly considered on renewal.
As always, we are here for you with any questions, at any time. Please feel free to contact Denise Hendrix at firstname.lastname@example.org
Copies of the legislation are attached for your reference.
Whether you are being foreclosed or are a new Lender wondering what the process is in Alberta, click on the attached link and you will see a description, summary and timeline (in general) for each step taken in a foreclosure action. As always, if you have any questions, please don’t hesitate to contact email@example.com
Guidance for Video Conference Witnessing and Commissioning of Documents Submitted to Land Titles for Registration
From the Law Society of Alberta
Updated April 8, 2020 @ 1 p.m.
Physical personal attendance with clients while they sign documents or swear affidavits may not always be feasible during the COVID-19 pandemic. Effective April 3, 2020, the Government of Alberta is temporarily permitting land titles documents to be witnessed remotely. Read the official letter. In addition, lawyers are permitted to take a deponent’s oath over two-way videoconferencing. The Ministerial Order is limited to situations in which a lawyer is the witness or is acting as a commissioner or notary in administering an oath while a deponent is signing an affidavit. The lawyer must be an active, practicing and indemnified member of the Law Society of Alberta. The Minister’s notice also states that lawyers are subject to the Law Society’s client verification rules and oversight.
The following is a summary of Law Society requirements and recommended best practices, followed by comments on the amended forms prescribed by the Ministerial Order. This guidance has been vetted and approved by the Registrar of Land Titles.
The Ministerial Order also permits the Registrar to authorize the registration of forms that may not be compliant with existing legislation. The Order did not address Form A and Form C, the Consent of Spouse and Certificate of Acknowledgement, contemplated in the regulations under the Dower Act. The Registrar of Land Titles has confirmed that the Certificate of Acknowledgement may be modified to make it consistent with the modified forms in the Ministerial Order. Please refer to additional guidance below.
Please note that Land Titles still requires originally executed documents and affidavits. The Ministerial Order permits remote execution, witnessing and administering an oath, but lawyers will still be required to obtain the originally executed documents from the client before submitting to Land Titles.
Of particular importance, the Registrar of Land Titles has also confirmed that the process may be used where the client is present outside Alberta, and only the lawyer must be present in Alberta.
Law Society Requirements
Lawyers must maintain high standards when identifying the client, and maintain the integrity of the process and the authenticity of the document. The purpose of this guidance is to ensure that parties signing or swearing any official land titles document are properly identified and cannot later deny understanding or signing the relevant documents. This guidance contemplates situations in which the lawyer witnesses the execution of documents by video, and thereafter completes an affidavit of execution, as well as those situations where the lawyer is commissioning the affidavit of execution sworn by a third party witness.
The Ministerial Order makes reference to requirements established by the Law Society. The Rules of the Law Society of Alberta require lawyers to identify and verify clients’ identity in the course of a legal retainer. Those rules have been modified during the COVID-19 pandemic.
The Law Society is also directing lawyers to manage risks by taking the following steps:
- Before the meeting:
- Secure a written consent from the client PRIOR TO THE MEETING to proceed with video conference signing. Notify clients that you will be taking screen shots of them and their identification.
- The client must send clear and legible copies of their identification (front and back) prior to the meeting. Identification should be current, government-issued photo ID. This may also be required by a lender in the event the client is obtaining a mortgage, but lawyers should also check with lenders to confirm their instructions.
- Follow the modified client verification rules set forth in the Law Society’s FAQ.
- Select a secure app or platform for the meeting and ensure both the lawyer and the client have the appropriate technology in place.
- Both the lawyer and the client must ensure that they have an adequate connection to permit the entire meeting to be conducted IN ONE SESSION without interruption. The client and lawyer must be able to see and hear one another throughout the video conference. This does not mean that there may not be interruptions; the lawyer should ensure, however, that the video and audio is continuously streaming while the client is signing or swearing a document.
- Prior to the meeting, deliver original documents to the client (hard copy or electronic for the client to print). The lawyer should retain one identical duplicate copy of each document for use during the meeting; there is no need for the lawyer to retain multiple copies.
- During the meeting:
- At the commencement of the meeting, the client must produce the same identification that was emailed to the lawyer. The lawyer must take “screen shots” and compare the photos on the identification with the individual on the call. Lawyers should also consider taking screen shots of the client, either separately or in the same screen alongside their identification.
- The lawyer must review the entire package with the client, page by page, and have the client initial all the pages.
- The lawyer should make best efforts to have a sufficient view of the client location to identify who is present and to ensure that confidentiality of the meeting is preserved. If the client needs assistance from a third party to act as a witness or to deal with technological issues, for example, the attendance of those third parties is appropriate.
- The lawyer must witness the client’s or deponent’s signature by video.
- Immediately after signing, the client must send a PDF version or photograph of the signed documents to the lawyer (preferably during the recorded video conferencing session). If the client does not have the ability to scan the entire document, it will be sufficient for the client to provide images of the signature pages to the lawyer.
- After the meeting:
- The original “wet ink” documents must be returned to the lawyer (preferably by courier).
- Upon receipt of the original signed documents, the lawyer must compare the documents and signatures to the ones in his or her possession to ensure that there are no missing or substituted pages, and that the signature received matches what was witnessed.
- The lawyer must complete the relevant documents that require further signatures, whether as a witness or as a notary or commissioner. The documents must reflect the manner in which they were executed. It is never permissible, for example, to complete an affidavit that suggests it was sworn at an in-person meeting between the deponent and the commissioner or notary when it was in fact taken by video.
- The lawyer should maintain minutes of the meeting, including the date, start time, end time, method of communication, identity of all people present.
- The lawyer should provide the client with a scanned copy or photocopy of the final versions of the executed and sworn documents. This may be done as part of the final reporting to the client.
Recommendations and Best Practices
Lawyers should always be aware of the risks associated with remote signing of documents and affidavits, including but not limited to:
- Identity theft;
- Undue influence;
- Lack of capacity;
- Leaving the client without copies of the executed documents;
- Failing to provide the client with an adequate opportunity to ask questions or request clarifying information about the documents they are executing.
Some recommended practices and safeguards include:
- Consider whether there are any indicia of fraud. If necessary, take additional steps to confirm identity or ask more detailed questions about the transaction;
- Be alert to the fact that some people may attempt to use the current circumstances and resulting confusion as an opportunity to commit fraud or other illegal acts;
- Assess whether there is a risk that the client may be subject to undue influence or duress. Lawyers should determine who is present at the remote location and their relationship to the client. If there is a risk of undue influence or duress, consider whether it is possible to assist the client at this time without meeting in-person;
- Confirm your client’s understanding about the documents they are executing and provide adequate opportunity for them to ask questions during the video conference;
- Observe others who may be physically in the room with the client during the execution and ensure that the client is alone for particularly sensitive documents where duress may be a relevant concern;
Land Titles Forms and Affidavits
When a lawyer receives documents from the client, the lawyer may sign as witness or may act as a commissioner for oaths or notary to complete an affidavit of execution sworn by a witness. The documents must disclose when the client or deponent signed remotely and the documents submitted to Land Titles should include an explanation of the circumstances surrounding their execution, and the manner in which the affidavit of execution was taken. The Ministerial Order outlines the required wording to be adopted in affidavits and sworn declarations to be filed with Land Titles.
The jurat on the affidavits required by Land Titles permits taking an oath via two-way video-conferencing with the deponent. The jurat and body of the affidavits also contemplates that the deponent will have provided evidence to the lawyer to permit the lawyer, acting as a commissioner or notary, to verify the deponent’s identity and to confirm the contents of the document being executed.
When acting as a witness, the lawyer will be required to swear an Affidavit of Execution swearing to the fact that the entire process was completed by two-way video conferencing and that the lawyer, as witness, was all times able to see and hear the person signing the instrument.
When acting as a commissioner or notary, the lawyer and client should refer to the process adopted by the Alberta Court of Queen’s Bench for the completion of affidavits, effective March 25, 2020
When commissioning an affidavit taken by video conference, both the lawyer and the deponent need to have a full copy of the affidavit and all exhibits in front of them. Pages should be compared to ensure they are identical, and initialed. The lawyer must administer the appropriate oath or affirmation and watch the deponent sign the affidavit, after which the deponent will send the originally signed affidavit to the lawyer. The lawyer must again compare each page of the signed affidavit with what the lawyer reviewed during the video conference, and may commission or notarize the document only if satisfied the two copies are identical.
While most of the Dower Act forms were captured in the Ministerial Order, Form C, the Certificate of Acknowledgement by Spouse, was not included. In the case of those Dower Act forms, Land Titles has confirmed that it will accept documents completed by video conference. Lawyers may use modified language in the Certificate of Acknowledgement, such as “This document was acknowledged before me by ______________, by two way video conferencing on the basis of evidence provided to me that enabled me to verify their identity, and apart from her husband (or his wife).”
Lawyers should not submit a document that suggests it was executed or sworn at an in-person meeting when it was in fact taken by video.
The Law Society of Alberta, together with the Government of Alberta is allowing for the registration of Land Titles documents that have been witnessed, sworn or affirmed by Alberta lawyers using two-way visual teleconferencing.
This is a temporary measure invoked by the Government that can end at any time and will expire, in any event, by August 14, 2010.
Original signatures are still required on all documents to register but they can be signed via video conference and then the originals sent to the law firm, to meet their requirements under this interim legislation, and to register at Land Titles.
Your safety and concern remains a priority to us. We are ready and able to do remote real estate signings with you and have implemented this process for court documents previously.
If you have any questions, please do not hesitate to contact our office at 403-269-9400.
We wish all our clients, colleagues, business partners and referral partners, health, grace and peace during this time.
We are pleased to advise that First Canadian Title Insurance has, at our request, made available the Attached Mortgage Priority Endorsement for Second Mortgagees. The cost is $75.00 but the value is priceless.
You can either add this endorsement directly through FCT’s website after you select the second mortgage priority in ordering your title insurance or you can create a note requesting the endorsement.
The requirements of the endorsement are as follows:
- The law firm obtains an information statement from the prior mortgagee that is within 30 days of the date of the FCT policy;
- The borrowers sign an irrevocable direction not to re-advance to the prior mortgagee and in that form request a partial discharge of the mortgage from the prior mortgagee;
- The law firm sends the prior mortgage the notice, by registered mail, of the borrowers irrevocable direction not to re-advance and also requests a partial discharge of the unadvanced portion of the mortgage. The law firm must keep a record of the delivery by registered mail.
The endorsement will then provide protection to the second mortgagee for the prior mortgagee asserting a claim for priority over the second mortgage for amounts of principal in excess of the amount shown on the information statement. I understand this endorsement has been available in BC and Ontario for some time. Please note this is only available for second mortgages and not 3rds, 4ths, etc.
We will be ordering these as a matter of course for all our second mortgagee clients. If you require any assistance with a format of irrevocable direction or the request for a partial discharge, please advise and we would be happy to help you.
For our First mortgagees, please ensure that all products secured by the registered mortgages are shown on your information statements as to the balance owing and secured by the registered mortgage.
If you have any questions, please don’t hesitate to ask.copy of second mortgage endorsement
In our foreclosure practice, we occasionally encounter borrowers who think they’ve stumbled upon a way to get rid of get rid of the interest on their mortgages. We are happy to set them straight, and the courts are on our side.
The issue is the application of Section 6 of the Interest Act, federal legislation which is indeed applicable to all mortgages. The Interest Act is a complicated and non-intuitive piece of legislation that is challenging to even lawyers to understand, so it’s not surprising that ordinary people read it wrong.
Here’s the actual wording of Section 6:
“Whenever any principal money or interest secured by mortgage on real property or hypothec on immovables is, by the mortgage or hypothec, made payable on a sinking fund plan, on any plan under which the payments of principal money and interest are blended or on any plan that involves an allowance of interest on stipulated repayments, no interest whatever shall be chargeable, payable or recoverable on any part of the principal money advanced, unless the mortgage or hypothec contains a statement showing the amount of the principal money and the rate of interest chargeable on that money, calculated yearly or half-yearly, not in advance.”
Perfectly clear, right? Hardly! The confusion arises from the reference to “any plan under which the payments of principal money and interest are blended”. Many, if not most, modern mortgages have a single payment which is applied to both the interest and the principal of the debt. Borrowers may think this means they have a “blended” payment, which would mean that no interest is chargeable unless they receive a statement showing the rate of interest chargeable calculated yearly or half-yearly, not in advance. If their interest is calculated monthly, these borrowers may conclude they’ve found a legal loophole to get out of paying interest.
However, “blended” in the Interest Act, doesn’t mean the standard mortgage payment that is applied to both principal and interest. The Supreme Court of Canada clarified that more than 50 years ago in Kilgoran Hotels Ltd. The Supreme Court considered that the purpose of this section of the Act was to protect borrowers from being unable to determine the true rate of interest being charged. With that in mind, the court determined that “blended” meant “mixed so as to be indistinguishable”. When considering a payment made on a mortgage, where a rate of interest is stated in the mortgage, and a payment is applied to both interest and principal, it’s a matter of basic mathematical calculation to determine how much of each payment is being applied against interest and how much to the principal. For that reason, the payment structure of most modern mortgages is not a “blended” payment.
Although it dates back to 1968, Kilgoran Hotels continues to be good law. It was most recently applied by Justice Graesser in his 2015 decision in David v. Canadian Premiere Mortgage Corporation. In that case, a borrower in a foreclosure action tried to argue that the lender should be barred from collecting interest by the provisions of s. 6. Justice Graesser revisited that ever-so-tricky word “blended” and found, as the Supreme Court did before him, that the math could “scarcely be simply” to calculate the true interest rate of the mortgage.
At Hendrix Law, we argue these cases regularly when borrowers feel they’ve found a clever loophole. Fortunately for lenders, the meaning of “blended” when it comes to mortgage payments doesn’t mean what borrowers think it means.
When buying or selling a business, one of the main considerations is whether to structure the transaction as an Asset Sale or a Share Sale. There are a number of considerations when making this important choice.
In an Asset Sale, the Purchaser only purchases certain assets of the target business, not the business itself. The sale can include a single asset, a group of assets or all of the assets of the target business.
An Asset Sale can be advantageous for the Vendor because they typically need to provide fewer representations and warranties in the sale agreement and can exclude certain assets that they wish to retain. The disadvantages for a Vendor in an Asset Sale can include the fact that it may require consents from third parties that may be difficult to obtain or additional registrations. On the Purchaser’s side, an Asset Sale may be advantageous because liabilities for the business are retained by the Vendor, a Purchaser can pick and choose which assets they want to purchase rather than having to acquire all of the target business’ assets and there may not be GST payable if the sale may be classified as a sale of a business as a going concern. An Asset Sale may be subject to the following disadvantages for the Purchaser. There may be more transfer taxes and registration fees. The Vendor may require that the Purchaser offers existing employees the same or similar terms as their existing employment. Finally, some assets such as licenses and permits may not be assignable.
In a Share Sale, the Purchaser usually purchases all of the issued and outstanding shares of the target company meaning that it is acquiring all of that company’s assets but also all of its liabilities.
A Share Sale may be advantageous for a Vendor because the purchase price may be higher if the company includes tax pools. Also, subject to any change of control provisions, all contracts, licenses and permits and their obligations and liabilities remain with the target company that would now be owned by the Purchaser. The disadvantages for a Vendor in a Share Sale may include the need to give extensive representations and warranties that may result in litigation later on if they are not true or don’t become true as promised. A Vendor may also need to provide indemnities that will oblige them to protect a Purchaser down the road from certain losses. A Share Sale can be advantageous to a Purchaser if the target company has valuable good will or a good reputation in the market. Given that the Purchaser acquires the whole target company, including their name, this may be of great value to the Purchaser.
If you are considering buying or selling a business, contact Hendrix Law to assist you in closing the deal while ensuring your interests are protected.
In a recent appeal decision, the Court of Queen’s Bench has prevented borrowers from taking a $200,000 windfall from a mistake by a mortgage. In Crystal Wealth Management System Ltd. v. JC Food Services Ltd. (2019 ABQB 59), Justice Browne considered an appeal from Master Schlosser. The mortgage lender, Crystal, had discharged a mortgage granted by JC Food Services Ltd. in error. For several years following the error, both lender and borrower were unaware of the error and carried on with the mortgage as if it were still registered. The mortgage went into default and Crystal commenced foreclosure proceedings. JC defended the foreclosure, arguing that the discharge of mortgage, even if accidental, serves to extinguish the underlying debt.
This was an appeal from a Master’s decision.
The facts were that there were husband and wife borrowers who granted a high ratio mortgage in 2007 to Servus. The parties separated in 2015. The Wife made the payments from April 2015 to January 2017.
In February 2016 the husband filed bankruptcy. Servus filed a proof of claim as a secured creditor only (not for an unsecured judgment). The husband was discharged on Nov. 30, 2016.
The mortgage was in default in January 2017. The Husband moved back into the property in March 2017. Foreclosure proceedings were commenced in May 2017 when the Husband said he would make no further payments and was abandoning the property.
Servus obtained an Order for Sale to Plaintiff and late sought judgment against the husband and wife.
The Master refused judgment against the Husband. She considered two principles being whether a promise to pay is not released by bankruptcy if payments were made during the bankruptcy or after the discharge versus the requirement of a debtor to direct his or her mind to the continuing personal covenant which may require fresh consideration to impose.
The Master held that the right to sue for deficiency would require proof of a mutual consideration to continue the liability and the proof that the debtor direct his mind to the continuation of persona liability in making the payments.
The Justice, on appeal, reviewed various provisions of the Bankruptcy and Insolvency Act. She particularly looked at a number of factors including;
a) Was the mortgage in default at the time of the bankruptcy;
b) If it was, should the lender have enforced the mortgage at the time of that default. Was the default nominal and was it cured during the bankruptcy;
c) Was the personal covenant reaffirmed simply by having the payments made. Did they reaffirm or acknowledge the debt owed? In this regard it doesn’t seem to matter who makes the payments as long as they are made;
d) Even with payments, was there a clear acknowledgement of the debt and continued obligation;
e) Whether the court must balance the goal of bankruptcy to give a borrower a fresh start versus the ability of a creditor to rely upon the payments as an affirmation of the debt without fresh or new consideration.
The Justice held that a lender should not be forced to foreclose just by the mere action of a bankruptcy. Accepting payments should indicate an implicit reaffirmation of the debt and personal liability by that conduct alone.
The Justice stated that fresh consideration or an express reaffirmation post discharge of bankruptcy would fail to adequately balance the rights of the creditors and debtors. She felt that favouring rehabilitation of the borrower over the significant injustice to the creditor was unfair.
She concluded that where a debtor files bankruptcy, maintains possession of the property, and continues to make payments under the contract, the debtor has affirmed the contract, including the covenant to pay.
So what does this mean for you?
If you have an insured mortgage and the borrower is still in possession of the property, and not in default under the mortgage, ensure that your proof of claim filed in the bankruptcy is only for the secured debt and not for any potential deficiency judgment.