Mortgage Broker

inadvertentdischarge 62 | winter 2017 cmba-achc.ca CMB MAGAZINE WHAT HAPPENS IF A PARTY that is engaged in a mortgage transaction acts on a title search knowing the search is inaccurate? e recent Ontario Supreme Court case of Mohan v Bank of Montreal, 2016 ONSC 3862, suggests the party does so at the risk of liability for resulting losses that affect others. What Happened? In 2004, the owner purchased property and granted the Bank of Montreal (BOM) a first mortgage in the amount of $326,250. Aer purchase, the owner split the property into two legal parcels and transferred one of them to the City of Mississauga. As part of the dividing process, the land registry received a form to discharge the mortgage over the City's property only. e land registry inadvertently discharged the 2004 mortgage against both properties. Upon the land registry cancelling the old title and creating two new titles, the 2004 mortgage was not registered at all. In 2006, the owner granted BOM a further mortgage, in order to secure a line of credit in the amount of $800,000. (Curiously the case makes no mention of the fact that BOM must have known the mortgage it was intending to register as a second mortgage was, in fact, registered as a first mortgage. is should have alerted them to the fact that their 2004 mortgage was not on title. e case does indicate that in the closing of the purchase transaction, at the latest, BMO knew about the state of the title. Its lawyer, as BMO's agent, made no mention to the seller's lawyer that he needed the 2004 mortgage discharged because he did not see it on title. is is the same as BMO knowing that the title did not indicate its 2004 mortgage.) In 2012, the owner sold his property. e exchanges between the lawyers in the closing process referred only to the 2006 mortgage; the 2004 mortgage was not to be found on title. e buyer was also financing the purchase with a mortgage from BOM. When signing the closing documents, the owner learned he was to receive approximately $1.89 million. Because the amount was more than the owner expected to receive, he told his lawyer he thought there was also a line of credit with BMO; however, he did not indicate the line of credit was secured by a registered mortgage. e lawyer showed the owner the title search and BMO's payout statement, indicating they refer to only one mortgage. e owner said nothing more about it. e owner's lawyer asked BOM to send him a discharge statement of their "first charge against the property"; there was no reference to the registration number of the mortgage and he did not include a copy of the search on which he was relying. On closing, the lawyer paid BMO the amount indicated on its discharge statement, and BMO applied the amount to the 2004 mortgage. When no discharge arrived, the lawyer contacted BMO, which, for the first time to anyone, raised the issue of its other mortgage. BMO said it would not discharge the mortgage on title until it was paid in full. is created a problem for the owner's lawyer, who, in the absence of the form of discharge, could not clear title, although he had undertaken to do so. e owner indicated that the sale proceeds were no longer available to pay the line of credit. Who's on the Hook? Based on these facts, should the 2006 mortgage be discharged and the title corrected? Should BMO get judgment against the owner? e court's decision comes down to two essential points: n e registry title is the accurate title to the property. n An exception to the above bullet is that a person who has actual knowledge that the registered title is inaccurate is not entitled to rely on the registered title. e court accepted that the title did not indicate the 2004 mortgage and showed the 2006 as a first mortgage. e balance of the Inadvertent mortgage discharge does not satisfy the debt BY RAY BASI, LL.B. STAFF, EDUCATION AND POLICY REVIEW Actual Knowledge Trumps Registry

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