Whoever lends a buyer or property owner money will usually secure the loan with a mortgage registered on the title. This is mainly to ensure that the mortgagee is paid back the loan, plus any interest or other fees associated with the mortgage, when the property is sold.
Is only a bank able to register a mortgage on title?
Most buyers obtain loans from banks; however, some buyers may also obtain a loan from a company or someone they know (such as a family member, friend or business partner). Any one of these is able to register a mortgage on title.
It is important for the lender to register the mortgage on title as it makes it more secure to have its loan paid out once the property is on-sold to another party by the current owner. If there is no mortgage on title, the lender is an unsecured creditor. The owner may sell and transfer the property, without having the loan paid out at settlement. The owner would of course be in breach of the loan agreement itself, however in practice the lender has to go to the trouble and expense of pursuing the borrower for repayment.
How do I have the mortgage released from title?
When a mortgage is registered by a bank, there is a document called a discharge authority form which is completed by the seller and submitted to the bank. This should be done as soon as the seller enters into a contract of sale, as the process for the discharge can take a while to process by the bank and for the payout figure to be generated.
Once the discharge authority form is processed by the bank, the bank will continue its process of preparing a Land Titles Document called a Release of Mortgage. This form is held by the bank until actual settlement occurs and in exchange for the Release of Mortgage, the seller provides the bank with their payout figure, which the bank will generate either a day prior, or on the actual settlement date.
This payout figure is generally paid from the seller’s sale proceeds, however sometimes there may be a shortfall if the seller is unable to sell the property for their requested price.
When this occurs, the seller needs to ensure they have contacted their solicitor or their bank, to provide the further contribution of funds from their own savings.
Once settlement occurs, the Release of Mortgage will be lodged with the Land Titles Registry and the mortgage will no longer show on title when the buyer becomes the new owner.
What if I don’t organise for the mortgage to be released from title?
If a seller does not organise for the release of mortgage to be released from the title, then there are a range of scenarios which could occur:
- the settlement will fall over as the parties acting for the buyer or the buyer’s new mortgagee will not settle without the seller’s mortgage being released; or
- the seller’s bank may realise the seller is trying to sell the property without paying out its mortgage and lodge a caveat over the property to prevent the seller from being able to settle the sale until they pay out the mortgage.
What if I pay out the mortgage but I am not selling the property?
If you don’t sell the property, and keep plugging away at the mortgage payments, eventually the happy day will arrive when the mortgage is paid out! The bank will hand you a release of mortgage, and that’s that.
It’s not! Make sure you take the release away and register it! Until this happens, the mortgage remains on title as an encumbrance on the property. We have seen many cases where an owner files the release in a drawer, and many years later has to try to register it. Titles Office forms change over the years, and the release may no longer be acceptable to the Titles Office.
Sometimes the owner has lost the release. They then have to ask the bank to prepare a fresh one. This can be difficult, especially when the bank has changed its name since the mortgage release was provided.
Who should you speak with to assist you in organising the release of mortgage from title?
If you have any trouble with organising the execution of the discharge authority for the Release of Mortgage to be provided either at, or prior, to settlement, then you may contact our office for assistance, or your lender. Our team of property lawyers have assisted thousands of clients through this process.
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