When a lender takes a mortgage on a property where a prior
mortgage is already registered on title, one of the central
concerns of the lender should be whether the prior mortgage secures
a running account or is otherwise readvanceable. This is because
further advances by the prior mortgagee that are made after the
subsequent mortgage is registered may take priority over the
subsequent mortgage unless one of four requirements of Section
28(2) of the Property Law Act1 is met.
Section 28(2) of the Property Law Act provides:
(2) Despite the Land Title Act, after October 30, 1979, further
advances made by a registered owner of a mortgage contemplated by
and in accordance with the mortgage rank in priority to mortgages
and judgments registered after his or her mortgage was registered
(a) the subsequent registered mortgagees or judgment holders
agree in writing to the priority of the further advances,
(b) at the time the further advances are made, he or she has not
received notice in writing of the registration of the subsequent
mortgage or judgment, from its owner or holder,
(c) at the time the further advances are made, the subsequent
mortgage or judgment has not been registered, or
(d) the mortgage requires him or her to make the further
In Paradigm Quest, Inc. v Chung,2 the
interpretation of Section 28(2)(b) was at issue.
Paradigm registered a first mortgage on title to the property
and commenced foreclosure proceedings when the mortgage went into
default. Paradigm named as one of the respondents, B2B Trust, the
holder of a second mortgage registered on title to the property. At
the hearing on its foreclosure petition, Paradigm sought a
declaration that the amount due under its mortgage was in priority
to the interests of all respondents. B2B Trust opposed this relief
and argued that advances made by Paradigm after B2B's mortgage
was registered did not take priority over B2B's mortgage. B2B
submitted that it had provided notice to Paradigm pursuant to
Section 28(2)(b), and produced a letter sent from its
solicitor's office which stated as follows:
"Please be advised that the writer acts on behalf of the
above noted Owner in connection with placing a second mortgage in
favour of B2B Trust in trust for on the above described property.
Our search indicates that you currently have a mortgage registered
on the property under No. LB32380.
Please provide a statement confirming the current balance owing
under your mortgage and whether or not the same is in good
Please respond via return fax as soon as possible."
B2B Trust submitted that this letter was appropriate notice to
Paradigm of registration of the second mortgage. Paradigm argued
that the notice sent was neither actual notice of registration of
the second mortgage nor was it sent by the holder of the second
mortgage. Rather, it was merely a request for information by the
solicitor of the registered owner of the property. Based on the
letter, Paradigm would have no way of knowing if and when a second
mortgage was registered.
Master Young took the opportunity to provide a helpful overview
of the earlier jurisprudence in this area. These cases discussed
the notice requirements where later charges on title purported to
take priority over earlier encumbrances. The balance of these
decisions indicated that actual notice of registration of the later
charge would be necessary in order to assert priority. These
decisions are consistent with the principle that in order to defeat
the priority of a prior chargeholder only actual notice will be
sufficient. Constructive, implied or anything short of actual
notice cannot defeat the rights of the prior chargeholder.
Ultimately, Master Young held that "the first mortgage
[sic] has no obligation to search the title every time they receive
an inquiry or every time they advance funds. The onus is on the
subsequent charge holder to provide actual notice. This was not
If you are a lender or judgment creditor registering a
subsequent mortgage or judgment on title to a property, ensure that
you strictly comply with Section 28(2)(b). The letter should come
from you (arguably, the letter could come from your solicitor), and
must be sent only after registration of the subsequent mortgage or
judgment is complete so the prior mortgagee can be notified of the
date of registration of the mortgage or judgment. The onus is on
the subsequent mortgagee or judgment creditor to ensure that proper
notice has been provided.
1 RSBC 1996, c 377, s 28(2).
2 2012 BCSC 1646.
A cautionary note
The foregoing provides only an overview and does not constitute
legal advice. Readers are cautioned against making any decisions
based on this material alone. Rather, specific legal advice should
The foregoing provides only an overview. Readers are
cautioned against making any decisions based on this material
alone. Rather, a qualified lawyer should be consulted.
Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
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