A look at current conveyancing issues

Rule 3-89 on mortgage discharges

BC lawyers are reminded that, if they are required to file reports respecting mortgage discharges under Rule 3-89, they must do so online via the Law Society website at www.lawsociety.bc.ca (Resource Library/Forms section).

New Rules 3-88 and 3-89 require a lawyer to report to the Law Society the failure of a mortgagee to provide a registrable discharge of mortgage within 60 days of any real property transaction that closes March 1 or later. The new rules also oblige a lawyer to report to the Law Society the failure of another lawyer or a notary to provide satisfactory evidence that he or she has filed a registrable discharge of mortgage as a pending application at the Land Title Office within that 60-day period.

A lawyer has five business days to report under the new rules. In addition to ordinary mortgages, the new reporting rules apply to debentures and trust deeds containing a fixed charge on land or an interest in land.

The Society is collecting this information to learn more about the business processes of financial institutions, whether there are certain institutions unable to discharge mortgages within a given timeframe and whether there are situations that require Law Society assistance or intervention.

The Society will not draw adverse inferences against a lawyer by reason of his or her failure to obtain a discharge of a repaid mortgage from a financial institution, in the absence of evidence of a breach of undertaking or defalcation.

For more information on filing under the rules, please contact David Newell, Corporate Secretary (dnewell@lsbc.org).

New CBA standard form undertakings

In March the Vancouver Real Property Section of the Canadian Bar Association (BC Branch), after consultation with other real property sections in the province, approved new standard undertakings for BC lawyers to use in conveyancing transactions. The CBA's standard undertakings have been referenced for several years in clause 14 of the BC Real Estate Association "Contract of Purchase and Sale," which is used for most real estate sales in BC. Not all lawyers, however, are aware that the standard undertakings were recently revised.

Clause 14 of the Contract of Purchase and Sale agreement states as follows.

14. CLEARING TITLE: If the Seller has existing financial charges to be cleared from title, the Seller, while still required to clear such charges, may wait to pay and discharge existing financial charges until immediately after receipt of the Purchase Price, but in this event, the Buyer may pay the Purchase Price to a Lawyer or Notary in trust, on the Canadian Bar Association (BC Branch) (Real Property Section) standard undertakings to pay out and discharge the financial charges, and remit the balance, if any, to the Seller.

The CBA undertakings now include "transparency provisions" respecting mortgage discharges. Specifically, clause 8.4 of the new undertakings requires that the vendor's lawyer provide to the purchaser's lawyer within five business days of the completion date copies of specified documents that demonstrate that the vendor's lawyer has made payments to existing chargeholders. In brief, copies of the following are required: mortgage payout statement, the letter from the vendor's lawyer that accompanies the payout, a payout cheque and evidence of delivery of the payout cheque. The purchaser's lawyer is not to release those documents to his or her client unless the mortgage discharge is still not received 60 days after completion.

The Vancouver Real Property Section incorporated this new step into the CBA standard undertakings in response to a recommendation of the Law Society's Conveyancing Practices Task Force in December, 2002. The Task Force had recommended prompt verification by a vendor's lawyer to a purchaser's lawyer of a mortgage repayment in conveyancing transactions. The reform is directed at avoiding or detecting such practice irregularities as arose in the real estate practice of former Vancouver lawyer Martin Wirick, specifically breaches of undertaking to clear title.

The Task Force now recommends that BC lawyers who close conveyancing transactions on the basis of undertakings use the revised CBA standard undertakings.

The transparency provisions may give rise to certain concerns over confidentiality. The vendor's lawyer may have concerns about disclosing confidential financial information of the vendor to the purchaser's lawyer, while the purchaser's lawyer may have concerns about not relaying that information to the purchaser. The Task Force believes these concerns can be managed through lawyers' communications with their respective clients.

The Task Force notes that the vendor's lawyer will need to seek the vendor's consent to the disclosure of the financial information. In the Task Force's view, the vendor should not resist authorizing his or her lawyer to disclose this limited financial information, which is necessary to allow the lawyer to comply with the undertakings. This is so particularly since clause 14 of the Contract of Purchase and Sale, to which the vendor is a party, allows for use of the undertakings and thereby contemplates disclosure of this financial information. The purchaser's lawyer should also seek client approval for the lawyer to review the vendor's confidential information without disclosing it to the purchaser.

The Task Force has taken the position that lawyers should discuss and resolve these issues in a manner consistent with both the contractual obligations of the parties and the goals of transparency.

Lawyers will note that clause 8.5 of the undertakings requires the vendor's lawyer to use "diligent and commercially reasonable efforts to obtain the discharge in a timely manner." The Vancouver Real Property Section has published a definition of what it considers to be diligent and commercially reasonable efforts. However, the Law Society's Task Force has not considered that definition and asks lawyers to exercise caution on a couple of points.

First, the Task Force notes that, in a lawyer's efforts to obtain a mortgage discharge, it would not be usual practice for the lawyer to contact the Law Society to obtain names of contacts within a particular financial institution. Second, it would not be usual practice for a lawyer to contact the Law Society for assistance to obtain the discharge. The Law Society cannot in fact become involved in individual conveyancing transactions. There may be certain situations in which a lawyer believes it important to contact the Law Society to flag a possible serious or systemic problem with a particular financial institution respecting mortgage discharges, but that would not be in the normal course of practice.

As already noted, lawyers are obliged to file reports with the Law Society in accordance with Rule 3-89. The Law Society plans to review filings under this Rule, with an eye to flagging systemic problems in financial institutions.

The Task Force understands that the Vancouver Real Property Section will soon review its definition of what constitutes "diligent and commercially reasonable efforts" to obtain discharges.