In all common law provinces, a borrower acquiring or developing real estate will provide a mortgage over land in favour of the lender. A mortgage entitles the lender to take possession of the asset and dispose of it, with priority over unsecured creditors.
Quebec is a civil law jurisdiction which also contemplates taking security by way of a hypothec over real (or immovable) and personal (or movable) property.
A corporate borrower may also provide a security interest in all (or some) of its current and future assets by way of a general security agreement or hypothec.
Guarantees and indemnities from third parties are also often provided to lenders and these may be supported by a mortgage, general security agreement or hypothec in favour of the lender.
Last modified 22 Mar 2024
Real estate includes land as well as the buildings and other improvements and fixtures on the land. A fixture is an item of tangible personal property that is permanently attached to a building or land so that it becomes part of the real property.
Title to land may be freehold (where an entity owns the land) or leasehold (where an entity owns the right to occupy and use land that is owned by a third party).
Security may be granted to a lender over freehold land or an entity's interest in leasehold property.
Last modified 22 Mar 2024
Canadian law recognizes the concept of a division between legal ownership and beneficial ownership. A division between legal ownership and beneficial ownership will occur where a trust is formed so that a trustee owns (or will own) the property on behalf of one or more beneficiaries. The trustee will hold the legal ownership (and therefore will be recognized as the registered owner) and the beneficiaries will hold the beneficial ownership.
The trustee is required to manage trust property for the benefit of the beneficiaries pursuant to the terms of the trust.
Last modified 22 Mar 2024
Secured debt is often traded between lenders. The transfer of debt can be effected by assignment and by registering an approved transfer or assignment form with the registry in which the associated security is registered.
Last modified 22 Mar 2024
Depending on the province in which any mortgaged property is located a foreign lender may need to obtain a license or be registered in order to do business in such province and to lend in such jurisdiction.
Last modified 22 Mar 2024
Fees will be payable for the registration of mortgages, hypothecs and other security interests, however, the amount will vary in each jurisdiction. Fees on enforcement may be levied in connection with any foreclosure process in the courts.
Last modified 22 Mar 2024
As with all corporate transactions, the granting of a mortgage or hypothec over real property requires the officers of corporate grantor to comply with its applicable articles of incorporation and by-laws and the laws or regulations of the jurisdiction governing such transaction. As an example, certain jurisdictions may restrict the ability of a corporation to grant financial assistance if at the time of granting such assistance, the corporation is insolvent.
Last modified 22 Mar 2024
There are no restrictions on repayments being made to foreign lenders under security documents or loan agreements. However, parties will need to consider their obligations in respect of payment of withholding tax. There are also restrictions on payments that have a prescribed connection with certain countries and terrorist or other restricted groups.
Last modified 22 Mar 2024
A creditor can agree to subordinate its security interest to that of another creditor by agreement. The applicable agreement will regulate the subordination of the debt as well as the security and will cover matters such as rights of enforcement as between the two contracting parties.
Liens resulting from a property owner’s failure to pay real estate taxes or common area or strata charges due under a condominium regime may have 'super-priority' over liens for mortgage debt, notwithstanding the fact that such mortgage lien may have been granted and registered prior in time to the filing of such tax or condominium lien. In addition, local laws may vary as to the priority given to a mechanic’s or builder’s lien filed as a result of an owner’s failure to pay contractors making improvements to a property.
Last modified 22 Mar 2024
If it is clear that the parties to the security document have made a bona fide choice of law by which the document will be governed, then generally that law will apply and the courts will apply that law in resolving a dispute to the extent that that law can be proven to the satisfaction of the court. However, local courts will not give effect to a foreign law, even where it is clear from the circumstances that the foreign law is intended to apply, where applying that law would be contrary to public policy.
Last modified 22 Mar 2024
Registration of a mortgage or hypothec is generally a prerequisite to a validly perfected mortgage charge in real estate. However, failure to perfect the charge does not in fact make such charge invalid. The charge could be perfected at a later date subject to arguments that upon a bankruptcy filing of the mortgagor, the granting of such mortgage constituted a fraudulent conveyance or is otherwise ineffective against the trustee in bankruptcy or other secured creditors.
Last modified 22 Mar 2024
A lender holding security over real estate does not normally incur environmental liability relating to the making of a mortgage loan, provided the lender does not itself cause or knowingly permit environmental damage to the subject property.
Generally, environmental laws can be enforced against an owner or occupier of land irrespective of who caused the problem. Environmental laws could therefore apply to lenders where they are in occupation of the land (for example, where a mortgagee is in possession of the security property following a borrower's default).
Last modified 22 Mar 2024
Each provincial jurisdiction imposes different procedural hurdles before a mortgage or hypothec in real estate can be enforced. Some provinces require judicial intervention while others permit non-judicial remedies.
Generally, the borrower must be given notice of default and prescribed notice periods must be complied with before a lender can enforce a mortgage or hypothec. Statutory notice periods vary in each jurisdiction.
Last modified 22 Mar 2024
Lenders to troubled real estate owners may be able, to the extent the mortgage agreement provides, to appoint a receiver or agent to collect rents and manage the property so as to protect the relevant collateral. The receiver can act to preserve the asset while foreclosure proceedings may be pursued.
Last modified 22 Mar 2024
Generally, the onset of a borrower’s insolvency does not affect the validity of a mortgage or hypothec granted to secure an obligation. However, the filing of any form of bankruptcy petition automatically stays foreclosure proceedings against the borrower. Nonetheless, courts may grant the lender relief from the automatic stay and the lender’s security may be enforced pursuant to the general enforcement rules.
Last modified 22 Mar 2024
Creditors holding registered mortgages or hypothecs will generally be paid in priority based on the timing of registration of their security interests. Generally, unsecured creditors rank in priority behind secured creditors who have properly registered their interests.
Last modified 22 Mar 2024
Is secured debt traded between lenders? If so, how is a transfer of the debt to another lender effected?
Secured debt is often traded between lenders. The transfer of debt can be effected by assignment and by registering an approved transfer or assignment form with the registry in which the associated security is registered.
Last modified 22 Mar 2024