Legal Blog

Vendor’s lien

A vendor’s lien allows an unpaid vendor to claim an interest in land, even without a mortgage in the vendor’s favour. However, the vendor may still have priority problems. The priority issue was discussed in Hosseini v. Salerno 2010 CarswellOnt938 (SCJ).

The Deal

Vendor sold to purchaser. Vendor was to discharge the 2^nd and 3^rd mortgages and purchaser was to assume the 1^st. Third party advanced funds to the purchaser to be used on closing. A new 2^nd mortgage was to secure these funds and the debt was to be repaid quickly from permanent financing the purchaser was to arrange. Vendor used the funds, in part, to repay the existing 2^nd and 3^rd mortgages and pay all arrears on the 1^st mortgage. Purchaser’s mortgage to third party was registered on closing as a 2^nd mortgage.

Several days after closing, vendor registered a vendor’s lien. He claimed that purchaser had not paid him the full amount due on the sale. Vendor then commenced an action claiming priority over third party.

The property was later sold under power of sale and the surplus of $500,000 was paid into court pending resolution of the two competing claims. Over $836,000 was actually owed under the 2^nd mortgage.

Priority

A vendor’s lien must give way in precedence to a mortgage that is registered on title at closing and used by a purchaser to obtain funds necessary to purchase the property.

Since third party’s mortgage was registered before the vendor’s lien in this case, it ranked in priority to it; third party had no knowledge of the differences between vendor and purchaser as to money allegedly owed to vendor and third party therefore took title for value without notice of the vendor’s lien.

If a vendor wishes to create a vendor’s lien that takes priority over all subsequent mortgages, the vendor must mention or reserve it in the transfer.