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Obligations and Liabilities under a
Mortgage
Many people sign a mortgage without first fully aware of
the significant obligations and potential liabilities under the mortgage.
Most people assume a mortgage is a standard type of document and nothing to be
concerned about. By signing a mortgage, you pledge your house or property is security for
the lender. But, what obligations have you agreed to or liabilities
are your exposed to?
To help understand what is covered by a mortgage,
you should be aware of some of the main provisions usually found in
a mortgage. .
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A mortgage is granted as security
for a loan normally. The loan could be made to you as the person
granting the mortgage or the loan could be to another person. The
mortgage can also be security other obligations; for example, as security
for a guarantee you might have given.
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Your house or other property
covered by the mortgage is security for the loan or other obligations
to the lender or mortgage holder. Until the lender is paid all of the
money plus interest, or the other obligations are satisfied, the mortgage is registered against the
property. The property not be sold free of the mortgage until the lender
has been paid in full all of the money plus interest plus its costs.
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You promise to make the payments to the lender.
Normally these are monthly payments. The payments include a portion of
the principal (or the original amount of the loan) repaid each month plus
interest on the principal.
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You promise to keep the
property insured. The insurance money, in case of a loss, is
usually payable to the lender as part of the security.
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You promise to pay the property taxes each year. This also includes the
water, sewer and garbage because if these are not paid, the amount is added
to the property tax bill. Any property taxes not paid take priority
over the claims of the lender under the mortgage.
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If there is another mortgage already against the
property, you promise to
keep that in good standing: you must make the payments, pay the
taxes, and do everything else required by that other mortgage.
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You promise you will not grant another mortgage against the house
without first getting the consent of the lender.
- You promise not to let a lien or judgment be registered against the house.
If one is registered, you are required to pay the amount required to get the
judgment or lien released.
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This is a summary of some of the main parts of the mortgage.
There are other obligations and promises under a mortgage which could be as important or even more important depending
on what happens in the future.
If you do not meet each and every term of the mortgage, the
lender has certain rights under the mortgage. Again, these can be summarized
in general terms as follows:
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The lender could foreclose. If you fail to make
the payments, or perform one of the other promises under the mortgage,
an order is made by a court that
you pay the lender all of the money owed plus interest plus court costs.
This is a judgment against you personally to pay the lender.
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If you do not make payment within the time set
by the court, the lender could have the property sold to
collect the judgment.
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If the house is sold by the lender in the foreclosure action, the sale
proceeds are used to pay the real estate commission, the unpaid property taxes,
the money owed under any mortgages, liens or judgments that come before the
lender's mortgage, the
court costs, and then the money owed to the lender.
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If the lender is not
paid in full, then the lender can collect the shortfall from you even after
the property has been sold.
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If the house is not sold in the foreclosure, the lender could take title
to the property.
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The lender can also take other steps to collect the judgment.
For example, the lender could:
- garnish any bank accounts you may have
- garnish your wages if you are working
- seize and sell property you own including possibly RRSP’s or
- obtain a court order requiring you to make monthly payments.
As you can appreciate, signing a mortgage is a serious
matter. There are many potential onerous obligations in a mortgage.
You should obtain
independent legal advice before you sign the mortgage to protect your interests and to make sure you fully
understand the obligations and liabilities imposed upon you. You
should always consult a qualified solicitor. The lender always gets proper
legal advise; so should you.
If you have any questions on the issues discussed above, or
on estate planning in general, please contact Sucha S. Ollek at: info@e-law.bc.ca.
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