Deeds, transfers, mortgages, charges, discharges and undertakings
FOR THE AVERAGE HOMEBUYER, there are some legal terms that require translation. The Government of Ontario keeps records of every piece of property in the province. These records are called the “title documents.” The document on file that says who owns the property is called the “transfer,” or “deed.” All of these documents are filed with the government — a process that is called “registering” the document. When a bank lends money and gets a record of this loan on the title, the document is called the “mortgage” or the “charge.” When the charge is paid off, a new document is filed with the government and it is called a “discharge.” If only part of the charge is paid off, a document called a “partial discharge” can be filed. There are many other documents, but these are a good starting point.
Usually, when a developer/builder starts a new project, he/she will go to a bank or other financial institution and just like you, arrange for a mortgage or charge. The difference, however, is that this can be a huge charge. As an example, the builder/developer may have a $50- or $60-million “blanket” charge applied to enable him/her to create and build the project. The next thing that happens is that the house or condo is built and sold, and it is time for closing.
In the Agreement of Purchase and Sale will be a clause that will relate to the discharge of that part of the blanket charge which affects the property you are buying. The builders’ lawyers (the good ones, in any case) add the clause that the purchaser will accept the promise (undertaking) of the builder’s lawyer to register the partial discharge in a reasonable period of time, BUT WILL GIVE ON CLOSING TWO IMPORTANT THINGS:
- a letter (“discharge statement”) from the bank or other financial institution (“mortgagee” or “chargee”) setting out how much money has to be paid to the chargee to obtain the partial discharge; and
- a direction from the builder to the purchaser, telling the purchaser to pay the amount of money needed to obtain the partial discharge directly to the chargee.
The clauses I will not accept stop with the purchaser being forced to accept the builder’s or the builder’s lawyer’s undertaking to register a partial discharge, without the other information.
Now, I do not believe the builder or the builder’s lawyers who do not include this information would give the promise without meaning it, but what about things out of their control? For example, if:
- the builder goes bankrupt
- the builder has a dispute with the bank
- some other party seizes the money from the builder
- the builder has an internal shareholders dispute and assets are frozen
- the lawyer goes to Argentina with the money
- the builder goes to Tahiti with the money
If we had followed a) and b), none of that would matter. My complaint is that it does not cost the builder anything to give this peace of mind and security to the purchaser. It is just usually the fault of a lawyer trying to prove how good he or she can be.
Watch for these tricky clauses and consult a lawyer, because only a lawyer can provide legal advice and care enough to catch these kinds of things.
Courtesy Jayson Schwarz LL.M. Jayson Schwarz is a Toronto real estate lawyer and senior partner in the law firm Schwarz Law LLP.