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Tuesday, 18 October 2011

What's on your title? Illegal mortgages? Undischarged mortgages?

What’s on your title? Barbarians in your house.

If you read periodicals or watch television, you may have seen the credit card company advertisement where a gang of barbarians rampage through the streets and end up asking you the question: “what’s in your wallet?”. The message is simple: if you don’t have their credit card, you are paying barbaric interest rates. So you better check your wallet and see what you have, before you become a victim of the barbarians.

The same idea holds true regarding your land titles certificate. Simply put: if you
don’t check your land titles certificate at least once a year, you may be unknowingly be a victim of barbarians in another way: unauthorized registrations, undischarged registrations, builders liens or charge-in clauses.

If you own real estate, you may be familiar with the land titles certificate. This certificate is a document which is maintained at the Land Titles Office under the authority and management of the Alberta Government. The purpose of the certificate is to let the public know who is the registered owner of a property. Additionally, the certificate lets the public know who else, other than the registered owner, has a legal interest in the property.

Other interested parties would include mortgage lenders who have lent money to the registered owners; community associations who have rules such as architectural controls which they want to enforce; and, municipalities and utility companies who have right-of-way or encroachment permissions.

In normal events, after you purchase your dream property, the land titles certificate will show that you and/or your spouse are the registered owners thereof. The certificate will also list the names of the lender who provided you with your mortgage. Down the road, if you borrower additional money, say from a second mortgage lender, their name too, would appear on your property’s land titles certificate, right below the name of your first mortgage lender.

If you were to sell your house, the buyers of your home would have their names replace your name and their mortgage lender’s replace your mortgage lenders.

If you were to keep your house and change your mortgage lender, then the old mortgage company’s name would be removed from title and your new mortgage companies name would appear.

In the last 90 days, I have had cases where clients find unauthorized or undischarged registrations on their land titles certificates. When this occurs, things become serious and may result in a lawsuit or worse.

An unauthorized registration is simply another way of saying mortgage or title fraud. 

There are thousands of examples of such fraud, however a basic description is when a fraudster finds a way to impersonate a legitimate property owner and then borrows money from a lender and never pays it back. Another example is when the fraudster steals the legitimate property owners identity then fraudulent transfers ownership to another person by way of sale.

There are cases when a house has been sold as a “rental property” on a “as-is basis” to ignorant buyers. So be suspicious if a vendor advertises: “Private sale… rental property…do not bother tenants” – it might be a real-life case of title fraud. Of course as buyer, if you use a Realtor, this problem should not arise.

An undischarged registration is a lot better, when compared to an unauthorized
registration but still very much a bad thing. In the case of an undischarged registration, you may have borrowed money say, $100,000.00 from one lender, when you first bought the house and some years later, you may have changed banks and applied for a new mortgage for let’s say $150,000.00.

Sometimes, the old lenders do not have their name removed from your land titles
certificate, so it appears that you owe one lender $100,000.00 and another lender
$150,000.00. Imagine waking up one day and finding out that your house which may be worth $200,000.00 has mortgages registered on title for over $250,000.00?

This happens more often than you may think. In fact, less than two months ago, one client applied for a refinance of their home. They bought their home in 1998 and the last time they borrowed money against the home was in 2004. After their new mortgage was approved, in May of 2009, all the paperwork went to the lawyer’s office for signing.

While at the lawyer’s office, it came to everyones attention that the bank who originally lent the money for the purchase of the house in 1998, did not have their name removed from the land titles document. This means that the borrower appeared to owe two different banks a combined mortgage amount which was double what the house was worth.

The moment the undischarged mortgage was identified, the new lender refused to lend money until the borrower resolved the matter of the undischarged mortgage.

To say the least, this was a major headache. After dealing with the shock of knowing that for the past 5 years, they were sleeping with an undischarged mortgage, the clients had to prove they were not fraudsters.

When the client’s approached the bank to get to the bottom of the problem, another series of problems followed. First, the old lender did not have files at the branch, so they could not verify that the borrower had ever borrowed money or not. Next, they bank would only speak with the husband who was later identified as the principal applicant – even though the original mortgage was in both husband and wife’s name. 

Finally, After 4 weeks of telephone tag, branch visits and senior management intervention, the clients were able to get the necessary proof that the mortgage from 1998 should have been discharged in 2004.

The cost to the borrowers was more than money. Yes, there were additional legal fees, however they also lost almost a month in time, so they could not do what they needed to do, when they originally needed the money. Imagine if they needed money for a wedding, a holiday or a family emergency. The delay caused by finding an undischarged mortgage could have been horrific.

Who was to blame? It is hard to say. The bank said they mailed out the discharge papers to the client. The client says they never received the papers because they were working with a lawyer at the time. The originally lawyer is now retired, so he had no comment on the matter. At the end of the day, the situation was resolved with patience, a positive outlook and the persistence to ask questions and stay on top of the matter.

In addition to the unauthorized registrations and undischarged registrations, there are other examples of land title certificate items that may negatively affect you, such as builder’s liens and charge-in clauses. If you would like more information on this subject, on a general basis, contact me. If you have specific questions, please speak to a lawyer. 

If you would like a current copy of your title, ask your lawyer or simply go to your
nearest Alberta Registry office and they will provide you with one. The cost is less than $20.00. Once you have your title, make sure you understand its contents and if there is anything which may give you cause for concern, contact a lawyer immediately.

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