On occasion a lender may discover that a borrower owns real property which was not previously disclosed to it and therefore not subjected to a specific mortgage registered under the Land Titles Act or (increasingly rarely) under the Registry Act. In the context where most registrations now are made through the pre-populated statements available under the Teranet electronic system, the absence of a conventional form of charge, mortgage or debenture with a specific charge and a legal description of a parcel of real property may appear even more problematic. However, sometimes a careful reading of other security documents which do not consist of typical forms of real estate security may unearth additional remedies for a secured lender.
A General Security Agreement ("GSA") may be drafted broadly enough to provide the lender with a security interest in all of the real and personal property of the debtor, even if the real property is not specifically described by an attached legal description. In this case, a notice of the GSA may be registered on title to the real property by way of a Notice under Section 71 of the Land Titles Act, since the lender has an unregistered interest in the property.
Registration of the Section 71 Notice can be done without the sometimes difficult task of obtaining a signed authorization and direction of the borrower. When registered, the Notice will caution all potential purchasers or encumbrancers that the lender claims an interest in the real property. As such, this may be a useful and cost effective tactic to prevent the transfer of title and/or dilution of the borrower’s equity to the lender’s detriment. However, this step is essentially only preventive and the process of realization upon the real estate by sale is necessary to satisfy the debt secured by the GSA.
In the event that there has been a bankruptcy of the debtor, the lender could approach the trustee in bankruptcy to complete a sale of the real property. Assuming that the trustee accepts the position of the lender that it has a security interest in the real property, then upon completion of the sale the lender would be entitled to the proceeds of sale as a secured creditor. However, the completion of the sale and the distribution of the proceeds would be affected by any prior registered interests or any writs of execution outstanding against the debtor.
If this option is not available, the question arises whether the registered GSA can be relied on to conclude a sale of the real property through a mortgage power of sale scenario. Unfortunately there is no clear answer to this question.
Normally the GSA would not contain the language granting remedies against real property in the same manner as a registered mortgage or charge, nor will it contain the legal description of the real estate. However, where principal money is secured "by a mortgage of land", and such mortgage does not contain a contractual right of exercising a power of sale, Part II of the Mortgages Act, R.S.O. 1990, c. M.40 applies to provide for a statutory power of sale which may be exercised, albeit on slightly different time frames for default and notice of sale than those allowed under a contractual right of power of sale.
However, notwithstanding this proposed manner of exercising a power of sale, the staff at the relevant Land Registry Office may take the position that absent a court order or clear direction from senior staff, title will not be transferred or certified under the Land Titles Act based upon the usual statements in an electronic instrument, or statutory declarations in a paper registration. Therefore whatever the definitive legal answer, resolving this issue could involve considerable delay and expense.