How to Prepare Closing Documents in a Residential Mortgage Transaction

Updated June 2012

This How-To Brief highlights the steps in preparing closing documents and some issues to be aware of when dealing with residential mortgage transactions.

1Client intake

  1. Acting for the borrower(s):
    • Have a thorough client intake sheet so that you are prepared to ask as many questions as possible.
    • Confirm the borrower(s) as set out in the instructions is/are on title (see step 6(a), below).
    • If you are acting for more than one borrower, obtain consent to act for both parties.
    • Send an engagement letter to the client to outline your retainer and the things the client needs to do.
    • Obtain identification and information to comply with the "know your client" rules (By-Law 7.1, made under the Law Society Act, Part III, Client Identification and Verification). (See the link to By-Law 7.1 in the Resources section of this How-To Brief).
     
  2. Acting for the lender:
    • Receive the mortgage instructions promptly and review them.
    • Confirm with the lender all conditions have been met and it’s okay to proceed.
    • Obtain the "standard charge terms" and any additional schedules in the instructions.
    • If a mortgage broker is involved, obtain the mortgage commitment and any direction(s) re: the proceeds of the mortgage.
    • If it is a private lender, send an engagement letter to the client to outline your retainer and things the client needs to do.
    • If it is a private lender, obtain identification and information to comply with the Part III of By-Law 7.1.
    • If it is a private lender, consider whether you need to complete Form 9D and 9E pursuant to By-Law 9, made under the Law Society Act.
     
  3. Acting for borrower(s) and lender:
    • Do all of the above.
    • Consider whether independent legal advice (ILA) is appropriate, and advise the client early so they can make arrangements.
    • Consider whether you can act for both sides in accordance with the Rules of Professional Conduct, rr. 2.04 (11)–(12).
    • Obtain consent to act for all parties in accordance with Rules of Professional Conduct, r. 2.04.
    • Self-directed RRSP lenders are not trust companies, and you cannot act for a borrower and a self-directed RRSP lender unless you fall within the exceptions in r. 2.04.
     

2Information gathering

  1. Title search

    Order your title search and review for the following issues:
    • Planning Act  
    • ownership (are all the owners approved for the mortgage?)
    • registry/land titles non-conversion
    • road access/environmental protection/other agreements
    • existing encumbrances:
      • Clients may not know their line of credit is registered against their house and this may affect the mortgage instructions.
      • Other secured interests may need to be postponed.
       
    Even if not required by any of the parties, you should have a deleted instruments search to help flag any mortgage fraud issues.

  2. Other information

    The following are things you should obtain:
    • Personal Property Security Act (PPSA) searches, if applicable
    • execution certificates for borrowers
    • payout information (credit cards, other bills)
    • discharge statement for any mortgage that will be paid out and removed from title
    • information statements from other mortgages that will be staying on title
    • property tax information
    • property insurance information
    • title insurance coverage options
    • building and zoning compliance letters
    • environmental searches or reports
    • notice of assessment to determine any known Canada Revenue Agency priorities
    If you are paying out credit cards, you may be directed by the lender to close the account upon payment. Advise the client that these are your instructions since they may not be aware of this requirement.

  3. Corporate parties

    In addition to the above, you will want to obtain
    • a certificate of status
    • an incumbency certificate
    • confirmation of authority to borrow/lend
    • authority of the person giving direction to bind the corporation
    • a letter of opinion from the corporate solicitor
     

3Documents to prepare

Unless otherwise agreed to, the following documents are usually prepared by the mortgagor's solicitor:

  • waiver re conflict
  • electronic Transfer or Polaris Transfer, if required to complete mortgage transaction
  • electronic Charge or Polaris Charge
  • electronic acknowledgment and direction
  • document registration agreement
  • mortgage acknowledgment re: standard charge terms
  • guarantee (where applicable)
  • direction re: proceeds
  • declaration of possession
  • any additional documents specified by mortgagee
  • independent legal advice (ILA) certificate, if required
  • funds summary, including amount advanced and amount(s) paid out
  • undertaking to discharge mortgage(s), where applicable
  • Forms 9D and 9E pursuant to By-Law 9

4Timelines

You will be affected by a number of timelines. A retainer letter helps set expectations for your client. Allow time to

  • obtain documents from your client
  • order the title search and resolve any title issues
  • receive the above information
  • arrange independent legal advice, if necessary
  • meet with your client
  • correspond with any other solicitors involved in the transaction
  • order and receive the money for disbursement

5Steps to closing

  • Receive funds from mortgagee
  • Search executions
  • Sub-search
  • Electronically sign the mortgage
  • Register the mortgage electronically
  • Payout the mortgages/debts/outstanding taxes, etc.
  • Advise the tax department if the mortgagee is paying the taxes
  • Report to the client and the mortgagee

6Issues to consider

a) Transferring title

Lending instructions may indicate the property is to be transferred into or out of someone's name. This is not a mortgage instruction, although it may be a requirement for funding. Attention must be given to the ramifications of this requirement, and an informed client may choose not to effect such a transfer.

b) Mortgage instruction modifications

After meeting with your client, you may receive a "modification" from the lender. You must review any changes with your client and receive approval prior to registration.

c) Title insurance

Subrules 2.02(10)–(12) of the Rules of Professional Conduct outline your responsibility to your client. Do not wait for the last minute to inform your client. This will provide them will a real option and not one made by the default of time pressures.

Know what and who is covered by the policy. A lender policy is different from an owner policy.

d) Joint retainers

Subrules 2.04(6)–(12) of the Rules of Professional Conduct outline your responsibility to your clients. Obtain consent early in the process to avoid complications. You need consent to act for multiple borrowers (even spouses) and to act for both borrower(s) and lender.

e) ILA

ILA may not be required, but it may be prudent. Your duty to a borrower, lender, guarantor, consenting spouse or longstanding client can create unnecessarily challenging obligations. ILA will not be sufficient if the clients require independent legal representation (ILR). You are required to know the difference.

f) Getting too involved

There are specific rules regarding your ability to lend or guarantee money and to advertise. Subrules 2.06(6)–(10) of the Rules of Professional Conduct outline some of your obligations. It is also advisable to contact your liability insurer to know whether you are covered for professional negligence. You likely have no insurance coverage for such activities.

Resources

Statutes and Rules