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How some professional are paying unnecessary asset protection costs

By John McKeown

A common risk-avoidance strategy by professionals is unnecessarily expensive.

Quite often, when they are exposed to a risk of being sued in their chosen profession, they seek to transfer jointly owned houses or other real estate interests to their spouse or partner.

Then they ask their lawyers what cost, if any, will be attached to such a strategy and they’re told the stamp duty and capital gains tax consequences.

But often the advice does not go any further and, in many cases of course, the properties to be transferred will be subject to a bill of mortgage to a bank or other financier.  The client speaks to his bank who proceeds to release the existing mortgage and do a new set of mortgage documents in the spouse’s name, which then have to be executed, stamped and registered.

The problem is that financiers, and even some lawyers, often misconceive that before ownership of land can be transferred to a third party, a bill of mortgage given by the previous owners must first be released.

And that isn’t true.

Such a process not only involves bank fees and Titles Office fees, but also involves the giving of a new mortgage back to the bank with its attendant mortgage duty, not to mention the inconvenience of the preparation and execution of a new set of mortgage documents.

The outlays in the process may range from $500 to $1,500 on a loan of $200,000, depending on whether or not the secured property is a principal place of residence.

The extent of ignorance with Bank’s security officers in relation to this matter is surprising.  Many seem to think that it’s necessary to get the new owner to physically sign a new mortgage to ensure the new owner is liable for the debt.

But section 63 of the Land Title Act deals with this point specifically.  It provides that the new owner is liable to comply with the terms of the mortgage.  And the original borrowers (including the professional) will still be liable to repay the loan under their personal covenants with the bank.