Mortgage Discharges in Ontario: What Homeowners Need to Know When Selling a Property

Selling a property involves more than transferring ownership to the buyer. If there is an existing mortgage registered against the property, that mortgage must also be properly addressed as part of the transaction.

For many homeowners, their mortgage represents one of the largest amounts of money involved in the sale. It is therefore important to understand how the mortgage payout and discharge process works, how sale proceeds are used to pay the lender, and what happens to the mortgage registered on title after closing.

Understanding this process can also help homeowners know what to expect from their real estate lawyer and what questions they may wish to ask before closing.

What Is a Mortgage Discharge?

When a mortgage is registered against a property in Ontario, it appears on title as a registered charge in favour of the lender.

Paying the mortgage balance does not necessarily mean that the registered charge immediately disappears from title. A discharge is the legal process through which the registered mortgage is removed from title after the lender’s requirements have been satisfied.

Ontario’s electronic land registration system provides for the registration of a discharge of a charge against a property.

What Happens to Your Mortgage When You Sell Your Property?

If you sell a property while there is still a mortgage registered against it, the mortgage will generally need to be paid out as part of the closing process.

Before closing, the seller’s lawyer will typically obtain a payout statement from the mortgage lender. The payout statement identifies the amount required by the lender to pay out the mortgage as of a particular date.

The payout amount may be different from the mortgage balance that appears on a homeowner’s regular statement. Depending on the mortgage and the circumstances, it may include amounts such as accrued interest, prepayment charges, administrative fees or other amounts owing to the lender.

For this reason, homeowners should not assume that the balance shown through their online banking or regular mortgage statement will necessarily be the exact amount required to pay out the mortgage on closing.

How Is the Mortgage Paid from the Sale Proceeds?

On closing, the purchase funds are received, and the seller’s lawyer deals with the funds in accordance with the requirements of the transaction.

Where an existing mortgage must be paid out, the amount required by the lender is generally paid from the sale proceeds before the remaining proceeds are released to the seller.

For example, if a property is sold for $900,000 and the lender requires $350,000 to pay out the existing mortgage, that mortgage payout is one of the amounts that must be accounted for before the seller receives the remaining net proceeds. Other amounts, including adjustments, legal fees, real estate commissions and other obligations associated with the transaction, may also affect the final amount received by the seller.

The exact amounts will depend on the particular transaction.

Understanding Where Your Money Goes on Closing

Homeowners should understand how the funds from their transaction are being handled.

Before or around closing, your lawyer can explain the amounts that are being paid from the transaction, including the amount required to pay out an existing mortgage and the other amounts being deducted from the sale proceeds.

If you are unsure about a mortgage payout amount, a deduction from the sale proceeds, or any other aspect of the transaction, you should feel comfortable asking your lawyer for an explanation.

Real estate transactions can involve significant amounts of money. Clear communication between a lawyer and client can help the client understand what is happening with their funds and what obligations are being satisfied as part of the closing.

Does the Mortgage Disappear from Title Immediately?

Not necessarily.

There can be a difference between paying out the mortgage and registering the discharge of the mortgage on title.

The lender must receive the amount required to satisfy the mortgage and the discharge must then be dealt with in accordance with the applicable process. Depending on the lender and the circumstances, the discharge may not appear on title immediately after closing.

This does not necessarily mean that the mortgage was not paid. The payout of the mortgage and the registration of the discharge are related but separate steps in the process.

What If an Old Mortgage Is Still Registered on Title?

Sometimes a title search may reveal a mortgage that the property owner believes was paid off previously.

This should not simply be ignored.

The lawyer will need to determine how the registered mortgage can be properly addressed. Depending on the circumstances, this may involve contacting the lender or obtaining documentation relating to the previous payout or discharge.

An outstanding registered mortgage can become particularly important when the property is being sold or refinanced because the new transaction may require the existing registration to be dealt with.

What Should Homeowners Ask Their Lawyer?

Homeowners should not hesitate to ask questions about the financial aspects of their real estate transaction.

For example, a seller may wish to ask:

• What amount is required to pay out my mortgage?
• Does the payout include a mortgage penalty or other fees?
• When will the lender receive the payout?
• How will the mortgage be discharged from title?
• What happens if the discharge is not registered immediately?

Your lawyer should be able to explain the mortgage payout and discharge process as it applies to your particular transaction.

How Minhas Lawyers Can Help

Minhas Lawyers Professional Corporation assists buyers, sellers and homeowners with real estate transactions throughout Ontario.

We believe clients should understand what is happening with their property and funds throughout their transaction. Our real estate lawyers can explain the mortgage payout and discharge process, answer questions regarding the amounts being paid from the transaction, and assist with the legal steps required to complete the transaction.

Contact

For assistance with a mortgage discharge, sale, refinance or other real estate transaction, contact Minhas Lawyers.

Email: [email protected]
Phone: (905) 671-9244

Serving Mississauga, Brampton, Toronto, the Greater Toronto Area, and clients throughout Ontario.

This article is provided for general informational purposes only and does not constitute legal advice. The mortgage payout and discharge process may vary depending on the lender, the terms of the mortgage, the property and the circumstances of the transaction. You should obtain legal advice regarding your specific circumstances.