Legal Blog

Mortgage-Lien Priority

Jade-Kennedy Development Corp (Re) 2016 Ont SCJ

Priority dispute between mortgagees of a bankrupt developer and lien claimants. The lien claimants had priority over the sale proceeds of land for the usual 10% of mortgage advances. The issue was whether they had priority in excess of that amount (i.e. was their initial priority under s.78(1) of the Construction Lien Act reversed if the mortgages fell within the provisions of s.78(6) of the CLA). S. 78(6) deals with a “subsequent mortgage,” which is a mortgage registered after the first lien arises (i.e. in essence, as soon as the 1^st work is performed on the land). Under s.78(6), a subsequent mortgage has priority if the advance under it is made before registration or notice of a claim for lien. The court held that these are the only conditions a mortgage must meet for priority; there is no need for due diligence. Further, an advance includes deductions for all other amounts that the mortgagor is contractually liable to pay, such as legal fees and interest. However, a mortgage given to secure a prior debt is not an advance and does not qualify for priority.

Written by Jonathan Speigel Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.