Mortgage Lenders generally assume their mortgage security extends over all of the fixtures in a mortgaged home. That is not always the case. Notices of Security Interest (NOSI) are a way that other creditors can give notice that they claim a higher-priority interest over certain fixtures in a home. Mortgage Lenders need to be aware of when another Creditor may claim a competing priority over a fixture in a home.
NOSIs are sometimes found on title where fixtures such as a furnace, air conditioning unit, security systems, satellite dishes or water systems are financed. Section 36 of the Personal Property Security Act (PPSA) governs these types of security interest. (Please note that a Security Interest is specifically defined as “not including any building materials”) The PPSA allows the Creditor to register a notice that the Creditor claims a security interest in the fixture in both the Personal Property Security Register and against the Title to the Property where the fixture has been installed.
Unlike most types of registrations found on a Land Title, the date of registration on the title DOES NOT alone determine the priority of a Notice of Security Interest. A Lender cannot assume that because a NOSI was registered on title after the registration of the mortgage, that the mortgage has priority and the Lender does not need to be concerned about the NOSI.
Instead, the key dates to determine are when the NOSI was registered on Title and when the goods were installed in the property.
- If the NOSI was registered on title at the same time as the goods were installed in the property, then:
– that NOSI WILL have priority over the mortgage.
- If the NOSI was registered on title after the goods are installed in the property, then:
– the NOSI WILL NOT have priority over the mortgage.
Normally, we consider all fixtures to a property to be part of the security we have mortgaged, whether improvements are made at the time of the mortgage financing or subsequently.
This legislation creates an exception to that assumption which allows the provider of the fixture to have a priority for the cost of that fixture until it is paid only if they register that security concurrently as the time the fixtures were installed.
Because of these unique rules about priorities, a Lender will not be able to determine simply from looking at title alone whether a NOSI has priority over the Mortgage. Further enquires must be made as to when the fixture was installed in the property and the registration date.
If the NOSI has priority over the mortgage, but the mortgage Lender desires to take ownership of the goods (for example, the lender wishes to ensure that a furnace can be sold with the property in a foreclosure sale), the Lender has the right to keep the goods in the property by paying the creditor the Lesser of the market value of the goods or the amount remaining owing on the security agreement. Alternatively, when the Lender takes title to the property, the Lender can demand the goods to be removed, if they see no value in them (and the goods have to be removed in a way that causes us the least damage they cause in the removal of their Secured Property).
The NOSI creditor is obliged to furnish information about its Security Interest to any party with an interest in the Land, on demand, and any disputes can be resolved by an application to the Courts.
As always, we recommend that legal advice should be obtained to determine the correct priority whenever dealing with a NOSI.