Every second lien lender should inquire not only about the amount of the mortgage, but also about the nature of the obligation. Some will then discover that the obligation, in addition to being universal, is often almost eternal.
The mortgage deed used to secure existing or potential obligations, to do or not to do, does it necessarily have to describe them accurately?
A homeowner who wants to build a house hires the services of an electrician contractor among others. Despite not being paid for two years, the contractor still guarantees the homeowner to a substantial amount with a creditor. In the following months, the contractor is forced to pay the creditor.
The homeowner, aware of their inability to complete the work, signs a promise of sale with a buyer. The contractor, fearing not to be reimbursed when the sale is finalized, convinces the homeowner to grant them a mortgage. The mortgage deed does not contain any specific reference to the debt but rather uses the wording of a credit facility. During the closing session, the buyer discovers the mortgage granted to the contractor. The buyer, who has already undertaken major work and choosing the lesser of two evils, agrees to conclude the sale without assuming this mortgage. In the following months, the buyer turns to the Superior Court to challenge the validity of the mortgage. The judge cancels the mortgage, ruling that the mortgage deed "does not indicate the cause of the guaranteed debts."
In an elaborate judgment, the Court of Appeal concludes that the obligation for which the mortgage is granted does not have to be specified in the mortgage deed. In order to be valid, the mortgage deed must simply be notarized, include a description of the encumbered property, indicate a determined amount of the mortgage, and be published.
As the mortgage deed is merely accessory to the obligation, any second-ranking lender should inquire not only about the amount of the mortgage but also about the nature of the obligation. Some will then discover that the obligation, in addition to being universal, is often almost eternal.
*C.A. 500-09-001136-944
