From time to time I'm asked whether, on a private mortgage in Ontario, the mortgage (which the Land Titles Act refers to as a "Charge") should be signed and registered by the lender's lawyer or by the borrower's lawyer. I have always taken the position that the borrower's lawyer should be the one signing and registering.
Many lender's lawyers prefer to sign and register so that they can keep control over the registration process. Even though I primarily act for lenders, and I see the benefits that could come from me signing and registering, I do not believe that I'm allowed to do so.
The Law Society of Ontario's Rules of Professional Conduct clearly states:
While the Rules do provide exceptions to the two-firm requirement, for the purposes of this discussion I am assuming that none of the exceptions apply and that there are two lawyers involved, one for the lender (the "Chargee") and one for the borrower (the "Chargor").
Now that we have the ethical framework in front of us, what does the law say?
Section 93 of the Land Titles Act provides that it is the registered owner who may charge land, not the lender. This makes sense, because otherwise anyone could register a mortgage on title to someone's property without the consent of the property owner. This concept is confirmed in the Land Registration Reform Act, which provides for certain covenants (promises) that are deemed to be given by a Chargor upon registration of a Charge. Although these covenants can be excluded from a Charge, if they are other covenants are usually required. Only the person promising to do something can give that promise, and it would not make sense if a Chargee could unilaterally register a Charge which, by its registration, imposes promises on the owner of the land.
We turn then to the language on the Charge itself, which is a prescribed form under the Land Registration Reform Act.
The paper Form 2 - Charge/Mortgage of Land, which is rarely used in Ontario now due to the prevalence of electronic registration (e-Reg) using Teraview, states in Box 11:
The Chargor(s) sign in the same Box 11.
Similar language is included in the e-Reg form of Charge, where each Charge contains the automatic language:
A Chargor no longer signs the Charge itself in the e-Reg system. Instead the Chargor gives authorization to someone with e-Reg access to electronically sign on the Chargor's behalf, typically by signing a document referred to as an Acknowledgement and Direction.
Once the authorized individual signs, his or her name and contact information is added to the Charge, together with other automatic language. The two clauses that are automatically added are: "acting for Chargor(s)" and "I have authority to sign and register the document on behalf of the Chargor(s)".
If a lender's lawyer signs a Charge, one of the following issues will arise:
- The Charge will state that the lender's lawyer is "acting for Chargor(s)", which is not true since the lender's lawyer acts for the Chargee(s); or
- The lender's lawyer is actually "acting for Chargor(s)", in violation of the Rule 3.4-12 noted above.
It is not my practice to lie on a registered instrument, and as such I can't say that I'm "acting for Chargor(s)" when I'm not. I also can't act for the Chargor(s) and the Chargee(s) at the same time, as doing so would violate the prohibition in the Rules of Professional Conduct against acting for both lender and borrower in the same transaction.
I also suggest that knowingly including a false statement of a registered instrument could also violate the Rules of Professional Conduct, and the agreement signed giving access to the Teraview system.
I'm open to having a discussion around what "acting for" means, however since "acting for" someone is referred to both on the face of the Charge and in Rule 3.4-12, I prefer to err on the side of assuming they mean the same thing.
So what do I do? I insist on the borrower's lawyer signing the Charge, because the borrower's lawyer is "acting for the Chargor(s)".
Funds are either held in trust until I confirm registrations are properly made, or, in the case of a purchase, a multi-party document registration agreement is entered into to govern the flow of funds. At times I am also open to submitting the Charge for electronic registration, as long as the Charge is signed by the borrower's lawyer.
While I admit that the process isn't perfect, it's what real estate lawyers need to do in order to comply with our professional obligations.
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