Charges/Mortgages and Remedies

• Author: Tina Kamakaris/Jane Kamakaris/Louis Kamakaris
• Pages: 593-608

593

Chapter 33 Charges/Mortgages and Remedies

CHAPTER 33

is chapter covers charges/mortgages and their role in purchasing real property and includes

illustrated guidance on the electronic preparation and registration of charges/mortgages, and also

discusses the various statutory remedies available to the lender.

WHAT IS A CHARGE

Pursuant to the Land Registration Reform Act, the term charge is the ocial name of the docu-

ment. A charge is also referred to as a mortgage or a charge/mortgage, and we use charge and

charge/mortgage interchangeably. A charge/mortgage is a debt on real property for the purpose of

securing a loan. us, if the borrower were to default in repaying the loan, the lender, e.g. a bank,

could force the sale of the borrower’s property to recover its money. Since the bank is lending the

borrower money for the borrower’s own use, the bank will charge interest on the amount of the

loan until the borrower repays the loan. e amount of the loan is known as the principal. In both

the electronic system as well as the manual system, the party giving the charge/mortgage is referred

to as the chargor, and the party who receives the charge/mortgage, e.g. the bank, as the chargee.

TYPES OF CHARGES/MORTGAGES

Charges/mortgages may or may not involve purchase and sale transactions. When they do, the

purchaser places the property he or she is purchasing as security for a loan. When they do not, the

party borrowing usually borrows for reasons other than purchasing a house, e.g. to pay o an IOU,

and places the property he or she already owns as security for the loan. We focus here on charges/

mortgages arising from purchasing real property because these help to also understand purchase and

sale transactions. Generally, there are three types of charges/mortgages in purchase and sale trans-

actions: new charges/mortgages, assumed charges/mortgages, and charges/mortgages taken back.

New charge/mortgage Generally, a new charge/mortgage usually means the vendor wants

his or her money in cash for the sale of his or her house, and the purchaser does not have it and

has had to borrow it. A typical new charge/mortgage comes about when Smith sells his property

for $300,000 in cash. Jones buys it, puts $100,000 cash of his own money toward the house and

has had to borrow the remaining $200,000 from the bank, placing the property he is buying as

security for the bank loan. us, Jones pays the $300,000 in cash to Smith ($100,000 of his own

money, plus $200,000 borrowed from the bank) and owes $200,000 by way of a new charge/

mortgage to the bank. Should Jones be unable to repay the charge/mortgage, the bank could seize

his property and sell it to get its money. New charges/mortgages are the most frequently used

charges/mortgages in purchase and sale transactions.

Legal TIP

Distinguish the roles

between the chargor

and chargee with this:

It’s best to BE the

charGEE.

CHARGES/

MORTGAGES

AND REMEDIES

Copyright © 2022 Emond Montgomery Publications. All Rights Reserved.

594 Legal Office Procedures

Assumed charge/mortgage When the agreement of purchase and sale states that the

purchaser will be assuming a charge/mortgage, it means there is an existing charge/mortgage on

the property and the purchaser will be taking it over: for example, Smith sells the property for

$200,000 but still owes $50,000 on his charge/mortgage to the bank. Jones buys the property,

but has only $150,000 in cash of his own money, and for the remaining part of the purchase

price, Jones assumes Smith’s existing charge/mortgage of $50,000, which means Jones, instead

of Smith, will be repaying it to the bank. is saves Jones the trouble of having to borrow

from scratch, but the bank would have to approve Jones as the new chargor/mortgagor. A new

charge/mortgage document is not prepared in this case because the assumed charge/mortgage

already exists -- Smith has it and would usually hand it over to Jones on the closing of the trans-

action. Assumed charges/mortgages are used occasionally.

Charge/mortgage taken back When the agreement of purchase and sale states that the

vendor will take back, VTB for short, a charge/mortgage, it means this: Smith owes nothing on

the property and sells it to Jones for $200,000. Jones pays $150,000 in cash of his own money

and Smith “takes back” a charge/mortgage on the property for the remaining $50,000, i.e. Jones

will be paying back the $50,000 to Smith gradually, instead of in cash, but with interest. A

charge/mortgage document would be prepared with Jones as chargor/mortgagor and Smith as

chargee/mortgagee. VTB charges/mortgages are used occasionally.

First, second, and third charges/mortgages Pity the chargor/mortgagor of three or

more charges/mortgages on the property. Although it is reasonable to assume from their numer-

ical order that the chargor/mortgagor pays o the one before starting payments on the other, it

is not so. e chargor/mortgagor makes payments on all three of them at the same time on each

of their due dates. e ordinal order is a reference to the priority for payment in the event of

default: for example, if the chargor/mortgagor defaults on any one of the charges/mortgages, the

chargee/mortgagee on whose payments the chargor/mortgagor has defaulted may force the sale

of the property, but payment from the sale money would go rst to the rst chargee/mortgagee,

then to the second, and nally to the third. Proof of priority is the date and time of registration

of each charge/mortgage. In eect, priority is on a “rst registered, rst paid” basis.

TYPES OF CHARGE/MORTGAGE REPAYMENTS

e repayment of charges/mortgages is done by the borrower making payments, usually monthly,

to the lending institution, e.g. a bank, over the term of the charge/mortgage. e word term

means the length of time before the charge/mortgage becomes due, or matures, e.g. three years.

e term matures or maturity means time is up, e.g. the three-year term is up, at which time,

the entire balance of the charge/mortgage must be paid in full. e payments during the term

of the charge/mortgage are made up of principal and interest on either an amortized or a non-

amortized basis.

Amortized payments ese are usually monthly payments, each of which includes

principal and interest, and are therefore referred to as blended payments. ey are called

amortized because, even though the term of the charge/mortgage is xed, e.g. for three

years, the amount of the payments is usually calculated as if the term were twenty-ve years

so as to make the monthly payments more aordable. On the maturity date, however, the

chargor must pay o the entire balance. If the chargor is not able to pay it o, the chargor

must either borrow again, or if the charge/mortgage contains a renewal clause, the chargor

may renew the charge/mortgage for a further period of time. Note the pattern and amounts

Copyright © 2022 Emond Montgomery Publications. All Rights Reserved.