Mortgage Calgary

The first change is a legislative change. The Law of Property Act was amended to allow a lender to pursue a deficiency against individuals who placed a high ratio mortgage or anyone who held title while the mortgage was in place. This means that if you take out a mortgage for more than 75% of the value of the land and the mortgage goes into default, the property is taken and sold, and if the amount realised from the sale is not enough to pay out the lender everything they are owed including all costs, then the lender can sue you for the deficiency. This applies to the individual who set up the mortgage and any one else who assumed the mortgage. Therefore allowing someone to assume a high ratio mortgage creates a risk because the seller is not in control of whether the buyer will allow the mortgage to go into default.

This is not a dramatic change. Previous to the change any mortgage insured under the National Housing Act (Canadian Mortgage and Housing Corporation CMHC) was under the same rules in Alberta. The change only allowed other insurers the same rights to level the playing field.

The second change that appears to be happening is that lenders are taking the position mortgage assumptions must be approved by the lender. Historically most lenders have a paragraph in the mortgage that requires the mortgage to be repaid in full if the property is sold. This is known as the “due on sale clause”. In Alberta the courts have given relief to a purchaser who had assumed a mortgage and kept the payments current, when the lender tried to foreclose because the mortgage had not been paid in full on the sale.

This led to the understanding that all mortgages are assumable and only those, which allowed a lender to pursue a deficiency, would have a risk attached to letting someone take over your mortgage.

A good number of lenders appear to be now saying that relief was only given in specific circumstances and that some time has passed since such a court decision and lenders will enforce the due on sale clause if mortgages are assumed without their consent. Consent from a lender will usually mean they have received credit information from the buyer and are satisfied that the buyer would qualify to borrow the amount owing on the mortgage.

One of the ways that lenders avoid the assumption happening without their approval is to refuse to provide a mortgage assumption statement prior to giving consent to the assumption. This causes problems in calculating how much cash the buyer must give to the seller. However, lenders are obligated to provide a statement of mortgage particulars if requested (for a fee), which could be used to determine the assumption value.

The risk is that the buyer after assuming the mortgage might be faced with the lender commencing foreclosure for breach of the due on sale clause. If the lender is successful the property is sold at forced sale price and foreclosure costs come out of the sale proceeds, leaving the buyer out money and maybe liable for a deficiency (seller may also be liable for a deficiency if the high ration provisions apply). Most buyers will not want to risk assuming a mortgage, when the lender is opposed to it and may commence foreclosure.