28 Further Advances By Mortgagee

PRACTICE

Form B, Mortgage

Checking the “yes” box in Item 7 of the Form B, Mortgage (current/running account) should be enough to bring s. 28 into play.

CROSS REFERENCES AND OTHER SOURCES OF INFORMATION

See the following for further information:

• Law Reform Commission of British Columbia, Report on Mortgages of Land: The Priority of Further Advances (Law Reform Commission, 1986)
• “Advances and Priorities” in Mortgages—1995 (CLEBC, 1995)
• Di Castri, Registration of Title to Land, vol. 2, paras. 522 and 524

CASE LAW

Constructive Notice

See the annotation for Capital City Holdings Ltd. v. C & A Mortgage Corp., 1979 CanLII 490 (BC CA), under s. 27 of the Land Title Act in chapter 3 (Land Title Act Part 3 (ss. 20 to 38)—Registration and Its Effect).

Agreement between Owner and Second Mortgagee

A second mortgagee applied, in a foreclosure proceeding, for an order granting it priority over subsequent advances by a first mortgagee. The first mortgagee made the further advances on its mortgage after the second mortgage was registered in the land title office. The second mortgagee’s loan agreement with the owner provided for the application of proceeds of sale to repayment of the full amount owing under the first mortgage and then to repayment of the full amount owing under the second mortgage. Section 28(2)(a) does not say that a priority agreement has to be between the first and second mortgagee, only that it be in writing. This section is not intended to be used as tool by a second mortgagee to take advantage of the first mortgagee when there is evidence that the owner and second mortgagee intended the first mortgagee to have priority for all sums advanced by it before or after the registration of the second mortgage. It was clear from the documents that the intention, expectation, and indeed the agreement between the owner and the second mortgagee was always to pay out the first mortgagee. The documents contained the essence and spirit of a priority agreement sufficient to satisfy s. 28(2)(a). As a consequence, further advances under the first mortgage had priority over the second (AOTK Holdings Ltd. v. Wigmar Construction (B.C.) Ltd., 1998 CanLII 3823 (BC SC)).

Actual Notice Required

In foreclosure proceedings, the petitioner argued that further advances made under its first mortgage after the respondent registered a second mortgage ranked in priority to the second mortgage because the petitioner had not received notice of the registration of the second mortgage from either its owner or holder at the time it made the further advances. Prior to the registration of the second mortgage, the petitioner received a letter from a legal assistant acting for the respondent in connection with placing the second mortgage on the property and requesting a statement from the petitioner confirming the balance owing under the first mortgage. In considering s. 28(2)(b) of the Property Law Act, the court concluded that actual notice must be given by the subsequent charge holder to the previous charge holder and not by someone acting on behalf of the subsequent charge holder. It was not sufficient to register the charge and assume constructive notice. There must be actual notice of the registration and not merely an inquiry about a payout of the previous mortgage or the standing of the previous mortgage. In the absence of actual notice, the petitioner was entitled to priority for all advances under its first mortgage (Paradigm Quest Inc. v. Chung, 2012 BCSC 1646 (Master)).

Actual Notice Not Sufficient

On appeal from a decision in receivership proceedings relating to a failed residential real estate development, the appellate court said the trial judge did not err in concluding that the first and second mortgages secured advances beyond the amounts of principal set out in clause 5(a) of their Form B mortgages insofar as the advances were made in accordance with the mortgage terms. The Torrens system is concerned with certainty of title and existing encumbrances; the third mortgagee, 625536 B.C. Ltd. (“625”), premised its argument on a flawed assumption that the registration system is intended to convey certainty of value of land and encumbrances. The appellate court upheld the trial judge’s finding that the first mortgagee did not receive written notice of the third mortgage as required under s. 28(2)(b) of the Property Law Act; she held correctly that overadvances could therefore tack in priority onto the first mortgage. The case differed from many tacking cases in that the first mortgagees readily acknowledged that they had actual notice of the 625 mortgage; that is, they knew it was registered on title from the outset. The judge found that actual notice did not suffice because the Property Law Act allows a prior mortgagee to tack until it receives written notice of registration of the subsequent mortgage (Forjay Management Ltd. v. 625536 B.C. Ltd., 2020 BCCA 70, leave to appeal refused 2020 CanLII 71311 (SCC)).