January 25, 2024
An equitable mortgage differs from a legal mortgage but has somewhat similar effects. As the Ontario Court of Appeal states, an equitable mortgage is “meant to enforce ‘a common intention of the mortgagor and mortgagee to secure property for either a past debt or future advances, where that common intention is unenforceable under the strict demands of the common law’”.[1]
The characteristics of an equitable mortgage are:
i) An equitable mortgage is a contract which creates in equity a charge on the property, but does not pass the legal estate to the mortgagee;
(ii) The concept of an equitable mortgage seeks to enforce a common intention of the mortgagor and mortgagee to secure property for either a past debt or future advances, where that common intention is unenforceable under the strict demands of the law;
(iii) An equitable mortgage can be created in several ways, including by the fact that the mortgagor has not executed an instrument sufficient to transfer the legal estate. For example, the mortgagor may have signed a document in the form of a legal mortgage, but for some reason of want of formality the document is not sufficient to transfer the legal estate. Or, an equitable mortgage may result from an agreement in writing duly signed to execute a legal mortgage.[2]
The court follows normal principles of contract interpretation to determine if there is an equitable mortgage. [3]
Once the court is satisfied that a party has established the existence of an equitable mortgage, the equitable mortgage creates a charge in equity on the property which is enforceable as if it was a conventional mortgage under the equitable jurisdiction of the court.[4]
TAKEAWAYS
Why is this important?
- Because , like a legal mortgage, an equitable mortgage takes priority over later unsecured debts, such as judgments protected by a writ of seizure and sale.
- Registering a legal mortgage is still the preferred option.
- If your loan agreement anticipates a mortgage which is never registered, if you can prove that you have an equitable mortgage, you are still ahead of the game.
WHAT WEILERS LLP CAN DO TO HELP YOU
Our corporate and commercial lawyers can assist you with protecting your rights as a lender. If your debt ends up in a dispute, our corporate commercial and real estate lawyers work closely with our litigation team.
If you think Weilers LLP might be the right lawyers for you, give us a call.
[1] Elias Markets Ltd., Re, (2006) 2006 CanLII 31904 (ON CA), 274 D.L.R. (4th) 166 (Ont. C.A.), at para. 63, quoted in Greenspan v. Van Clieaf, 2023 ONCA 681 at para. 44
[2] Emmott v. Edmonds, 2010 ONSC 4185, at para. 64 cited in Greenspan at para. 45
[3] Greenspan at para. 47- 48
[4] Greenspan at para. 46.