LIENS AND COLLATERAL CHARGE
To avoid delays and save time on a transaction, one should always obtain clarification on who are the borrowers on title, registration percentage amount of ownership, if there are any liens registered and or if the existing mortgage is registered as a collateral mortgage.
Typically clients are not aware what is a collateral charge. A collateral charge is registered for more than the initial loan amount advanced on closing. The banks typically do not explain this to the borrower and would just get them to sign.
Clients should always ask about the pros/cons of having a collateral charge. In most cases, this can hinder the clients ability to borrow additional funds against the property from another lender.
Clients have the right to opt-out on this option. Look out for this especially when obtaining a secured credit line / home equity line of credit (HELOC ) as the banks would typically want to register it as a collateral charge and not explain the fine print writing upon clients signing of the mortgage commitment/ approval documents.
Always double check with your lawyer prior to closing to go over the instructions received from the banks to ensure it does not read as a collateral mortgage if you opted out of this option.
MORTGAGE PROFESSIONALS AND SECOND MORTGAGE LENDERS
1. Ask your clients if their first mortgage is registered as a collateral charge and to ask their bank this question to confirm as this could be a deal breaker since it will affect your risk exposure. This will affect the loan to value (LTV) exposure if a client is seeking a second mortgage and could affect the clients ability to borrow additional funds.
2. Ask your clients if there’s any lien such as for a furnace. If it’s paid out then the client must provide confirmation of the discharge. There has been cases where a lien is paid out by the borrower but it is still registered on title.
Contact us if you have any questions at 6474949885 ext 101 or 107.