Lenders advancing funds in stages or draws to a mortgagor should pay particular attention to searching for execution judgments against the mortgagor prior to advancing such funds. This is particularly common in construction loans whereby lenders will be making a series of advances over time. Once a lender has registered its mortgage prior to the initial advance to ensure its priority on title, this is not necessarily the end of the matter. On subsequent advances, while it is important to search title to the property to determine if there are any registrations of concern, such as construction liens, it is equally important to search for executions against the borrower, as the law on the priority as between a mortgagee and an execution creditor remains unclear.
There is some historical case law and secondary literature which suggests that an execution creditor may not be entitled to priority over a prior mortgagee for advances made by the mortgagee subsequent to the placing of a writ execution, for which the mortgagee has received actual notice; however, the law is not entirely clear on this point. Until there is greater legal certainty, we recommend the following:
- Lenders should search for writs of execution on each advance in the jurisdiction in which the property is located. For example, if the mortgagee has security over a portfolio of properties located in different jurisdictions or if there is collateral real estate as security, all applicable jurisdictions should be searched. Lenders should not rely on the argument that it did not receive actual notice of a writ of execution if its priority were to be challenged by an execution creditor.
- When an execution creditor registers a writ of execution, a letter should be sent by registered mail to any and all mortgagees in order to avoid the argument by a mortgagee on title that the mortgagee did not have actual notice of the writ registered in the execution creditor’s favour against the property. An execution creditor should ensure that it has registered the writ in the jurisdiction(s) in which the property (or properties are located).