Mortgage Broker

mortgagetakeover MortgageBroker mbabc.ca winter 2015 | 27 Assuming the mortgage may allow the buyer to obtain a mortgage (including an interest rate) better than anything available in the market at the time. It may also save time and expense by avoiding appraisal, survey, title insurance and other closing costs. e lender may benefit from allowing a mortgage to be assumed if the alternative is to have the buyer move to a new lender. e agreement for the purchaser to assume the mortgage from the seller does not alter the obligation of the seller under the mortgage to repay the mortgage amount; the seller could be held responsible under the mortgage for a breach by the purchaser (e.g., if the buyer fails to make the payments). e Property Law Act may provide some possible protection from this situation. It provides that the seller will be released from liability under the mortgage if either of the following circumstances arises: • In the case of a residential mortgage, if within three months of the transfer the original borrower requests the lender to approve the person buying the land subject to the existing mortgage (this approval cannot be unreasonably refused); or • If the lender does not approve the buyer within three months of the transfer, then the original borrower is released within three months of the existing term expiring unless the lender gives written notice to the original borrower within that time demanding payment. Courts have not interpreted these clauses and it would be prudent for the parties to put an agreement for assumption in place to cover off their agreements and expectations. is is important because the law, in the absence of the above provisions applying, is that the seller remains responsible for the mortgage until he/she is released by the lender or there is novation (i.e., a new mortgage replacing the assumed mortgage). ere is some uncertainty how much the existing mortgage must have changed to be able to say that it is a new mortgage. It appears it is to be decided on a case-by- case basis. e following three facts must be established for the changes to be seen as a new mortgage: • e new debtor must assume complete liability; • e creditor must accept the new debtor as a principal debtor, not merely as a licensee or guarantor; and • e creditor must accept the new contract in full satisfaction and substitution for the old contract. e purchaser is not without risk. e purchaser, by assuming a mortgage, becomes responsible for the actual state of the mortgage, not just what the purchaser understood to be or was told was the state of the mortgage. e purchaser will want to obtain written certification from the lender as to the state of the mortgage (e.g., the balance owing, any breaches, and any notices). e lender will want to perform its due diligence to ensure the buyer qualifies to assume the mortgage. e lender is entitled to require the buyer to provide reasonable financial information respecting the transferee or proposed transferee and a reasonable fee to cover the costs of obtaining a credit report and handling costs. Lessons learned • ere are some opportunities for assuming mortgages now. e groundwork can be laid to make a mortgage suitable for assumption in the future. • Most mortgages have a term that states the sale of the mortgaged property entitles the lender to call the mortgage due. While there may be benefits to the seller, buyer and lender when a mortgage is assumed, all parties need to protect against risks. •

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