An informative article put out by a local Calgary Real Estate Lawyer

With interest rates steadily dropping over the past number of years, there hasn’t been much incentive or demand for buyers to assume existing mortgages from sellers. Since it appears that interest rates have “bottomed out” and most experts expect mortgage rates to rise in the near future, the demand for mortgage assumptions is likely to increase. As a result, this is a good time for a refresher on how to handle mortgage assumption transactions. 

First of all I need to dispel a couple of common misconceptions. The belief that: 

• all mortgages are assumable in this province; and 
• a seller’s liability under a high ratio insured mortgage ends upon the buyer making twelve consecutive payments or upon the renewal of the existing mortgage term. 

In the past, it was difficult for banks to prevent their mortgages from being assumed. However, for close to a decade the courts in Alberta have been enforcing “due on sale” clauses (the obligation of the home owner to secure the bank’s consent for a change of ownership) as part of the fight against mortgage fraud. What this means is that if a homeowner transfers the title without the involvement of the mortgage lender, the lender can foreclose on the property for that reason alone even if all the other obligations of the borrower (including all mortgage payments) have been honoured. 

It is for the foregoing reason that the standard AREA Residential Real Estate Purchase Contract was amended in 2006 to incorporate an automatic “mortgage assumability” condition in clause 8.3. This condition ensures that if the lender does not consent to the Buyer assuming the mortgage, then the contract will terminate. 

It should be noted that this condition is unique in a couple of respects. First of all, the condition is triggered automatically by the insertion of a dollar amount in the Assumption of Mortgage line of paragraph 2.2. Even if the parties overlook paragraph 8.3 and do not insert a Condition Date, the condition will still apply. Without a specified date, the condition will extend for a “reasonable” length of time. It goes without saying that the better practice is to insert a certain date for the expiry of the condition in order to avoid disputes. Secondly, this condition is specified to be for the mutual benefit of both the Buyer and the Seller and, as a result, has to be waived by both parties to firm up the contract. 

In order to avoid disputes respecting the terms of the mortgage being assumed (interest rate, payments, remainder of term) the relevant portions of the Financing Schedule should be completed and the Schedule incorporated into the contract by checking off the relevant box in paragraph 7.5. 

If the mortgage being assumed is conventional (non-insured), then this is as far as industry members need to go. The lawyers handling the closing of the transaction will order an assumption statement from the lender, adjust the purchase price and payments and handle the rest. 

If, however, the mortgage being assumed is high-ratio insured, then extra caution should be exercised by industry members. The Seller will remain personally liable for any deficiency on the mortgage for the remaining life of the mortgage (including all renewal terms). 

The twelve months payment rule, which was internal policy at CMHC only, no longer exists. The reality is that the Seller’s liability will only end upon the mortgage being repaid in full, and the Seller has to understand this risk prior to signing the acceptance of the offer. The only possible way in which the Seller would be protected against the risk of future default by the Buyer would be if the mortgage lender was prepared to “release” the seller from liability. While a Seller’s condition respecting the securing of such a release could be inserted into the contract, this is likely a waste of time as mortgage lenders have little or no incentive to grant it. 

To ensure that the Seller’s problems do not become the problems of the listing agent, a written acknowledgment confirming the Seller’s understanding of continuing liability under the high ratio insured mortgage being assumed should be obtained prior to the execution of the contract and kept in the Brokerage file. 

By

Lubos K. Pesta, Q.C. Walsh Wilkins Creighton LLP  

By Elden Freeman

If the family room is the emotional centre of a house, the kitchen is its heart and soul.

It’s where we do a lot of living. As such, it’s one of the more expensive areas of a home to build, to renovate and to keep running smoothly and efficiently. It’s also an area we can easily overlook in our quest to raise our environmental know-how.

Installing faucet aerators and shopping at Whole Foods are great for our eco-consciousness but there is so much more homeowners can do to lessen their impact on the environment and to save money in the meantime.

About 30 per cent of your household energy use takes place in the kitchen. Because energy guzzling appliances are a big part of the kitchen, it’s important to rethink or relearn how to use them. According to Kate Heyhoe, author of Green Cooking: Reducing Your Carbon Footprint in the Kitchen, this can be done without sacrificing your favourite recipes.

Your overall cookprint – which is what Heyhoe calls the environmental impact created when you eat and cook – is what we need to begin shrinking. You’ve heard this term elsewhere, more likely as sustainable eating.

The oven is an energy hog or as Heyhoe puts it, the Humvee of the kitchen. Since only about six per cent of the fuel used for an oven goes toward active cooking, try using a toaster oven or your cook-top instead. Try more passive cooking. Reconsider the length of time you preheat the oven and give it a try without any preheating time at all. Consider turning the oven off 10 or 15 minutes earlier than the prescribed cooking time, which allows the food to finish cooking from heat already built up inside the oven. Try softening noodles by soaking them first in boiling water.

Many green foodies abhor microwave ovens, but they probably don’t know that they consume far less energy than a stove. The beauty of a microwave is that it doesn’t heat up your kitchen and lead you to turn up your air conditioning. Try not to use them to defrost foods, though, because that’s simply wasteful. Thawing food overnight in your fridge is best.

Did you know that convection ovens produce 30 per cent less greenhouse gases than conventional ovens?

Many kitchen faucets are controlled by a single valve. If you leave the handle tilted to the hot side (usually the left) and turn that on, you fire up the hot water tank even when you don’t want hot water. Simply leaving it turned to the right saves energy.

Teflon cookware and single-serving containers are two of Heyhoe’s biggest pet peeves. Teflon is not only toxic but often poorly made and easily disposable. Single-serving containers of yogurt and individual bottles of iced tea add needless waste to our landfill sites. Consider instead brewing your iced tea at home or eating your yogurt from a bowl or lunch-box container.

Since kitchens generate the most waste of any room in the house, start by minimizing the excess packaging you purchase at the supermarket. Buy fresh, unwrapped produce, avoid buying in bulk and huge portions unless you eat in bulk or have a big family to feed. Reuse plastic bags, glass jars and packaging. And don’t forget to compost your organic waste.

The toxins that go into dishwashing soap, floor and glass cleaners, detergents and the gamut of household cleaners we use in our kitchens is frightening. There are solutions with cleaning products that are non-toxic, biodegradable and plant-based. Or consider making your own household cleaning products from such kitchen staples as baking soda, lemon juice and white vinegar.

While we should celebrate the earth every day of the year, April brings us Earth Day on the 22nd as a reminder. Consider sharing some of these tips with your clients. The earth will thank you for it.