The release is an important step in the mortgage repayment process, as it formally frees you from the lender’s claim on your property.
But what exactly does it involve exactly? How does it work? When is it required? Are there any fees associated with the release? This article will provide you the answer to these questions.
The mortgage release agreement in Quebec
The release agreement is the official document that confirms a property’s mortgage has been fully paid off. It also verifies that the property is free from any claims, except for those of the current owner.
In the release deed, the lender acknowledges that all amounts owed have been received and authorize the cancellation of the mortgage in the land registry. This cancellation ensures that the property is no longer being used as collateral for the mortgage debt.
What is the difference with a mortgage discharge?
The terms release and discharge might seem familiar at first, but there is a clear distinction between the two.
A release completely frees you from the rights held by your financial institution once your mortgage is fully paid off. On the other hand, a discharge only partially relieves you from the claims your creditor has on your property.
For instance, a discharge might be used when multiple people have purchased the same property with an existing mortgage, or when an owner has repaid enough of the loan to provide the financial institution with sufficient guarantees.
Why request a mortgage release?
A mortgage is a loan secured by a property. When you take out a mortgage with a financial institution, it registers a lien on your property. This lien, also known as a "right" or "charge," gives the lender the legal authority to seize your home if you fail to meet the terms of your mortgage contract.
When you sell your home or fully repay your loan, your lender does not automatically relinquish its rights over the property. As a result, you must take the necessary steps to request a mortgage release and remove the creditor's claim on your property.
How to obtain a mortgage release?
In Quebec, only notaries and lawyers are authorized to prepare the necessary documents for a mortgage release. Typically, you will need to contact a notary to handle the process.
Here are the steps a notary must take to obtain the mortgage release:
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The notary verifies the mortgage balance with the lender.
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The notary obtains a written commitment from the lender to sign the release deed once the amounts owed are fully paid.
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The notary submits a draft of the release deed to the lender.
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The notary ensures that the deed is signed by an authorized representative of the lender.
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A public officer attests the lender's signature.
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The notary registers the release deed in the land registry.
Once the lender signs the release, the borrower no longer owes anything to the financial institution. The publication in the Bureau of Publicity of Rights formally indicates that the mortgage is no longer active.
What are the consequences of not obtaining a release?
Without the release deed, the creditor of the previous owner still holds a lien on the property.
If the mortgage remains unpaid, the creditor retains the legal right to issue a notice of exercise, which allows them to reclaim the property to settle the outstanding debt. This applies even if the current owner of the property is not the original borrower.
When should you request a mortgage release?
Several situations may prompt you to obtain a release for your mortgage.
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When selling your house
Often overlooked among the many documents required for a real estate transaction, the release deed plays a crucial role in the transfer of ownership between the seller and the buyer.
When selling a property, the outstanding mortgage must be repaid to the lender. It is the notary’s responsibility to ensure that this debt is settled in exchange for the signing of the release deed. To pay off the loan, the notary will use the funds provided by the buyer, which are deposited into the notary's trust account.
Since both the mortgage and the release are recorded in the land registry, the buyer can easily verify that the loan has been fully repaid.
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When transferring your mortgage
In addition to a real estate transaction, a release is also required when changing mortgage lenders. If your mortgage is up for renewal, you may choose to switch to a new lender and transfer your mortgage.
When changing lenders, the details of your loan and property title must be updated. With the assistance of your notary, you will need to obtain the release of your original mortgage in order to grant the necessary privileges to your new lender.
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When your mortgage is fully paid off
Another situation that may require a release deed is the full repayment of your mortgage. If you have been living in the same property for several years and have fully paid off the amount owed to your lender, you can request a mortgage release to permanently remove the lender's rights over your property. However, it is important to note that you are not required to request the release immediately after making the final payment.
As long as you are not selling your home, you are not obligated to request the release, even if the loan is fully repaid. While many experts recommend requesting the release as soon as possible, you can choose to wait. However, it’s important not to delay the release for too long.
What are the advantages of waiting before obtaining a release?
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Protection against fraud
While it’s not foolproof, having a registered mortgage in the land registry can offer some protection against fraud. A motivated fraudster is more likely to target a property that has already been released, as no verification is required from the previous creditor. A property with an active mortgage complicates any attempts to use it as collateral for a loan, making it harder for fraudsters to act. However, this protection is not as strong as title insurance.
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Access to financing
Another reason to delay obtaining the release is the potential to maintain easier access to financing. If you have a line of credit tied to your mortgage and it’s not in use, signing the release deed would sever access to this resource. This could mean losing a valuable source of low-cost credit, which might be helpful in an emergency or for funding new projects.
While you’re not obligated to use this line of credit, having the ability to quickly tap into additional funds can be reassuring.
What are the disadvantages of waiting before obtaining a release?
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Increased risk of unnecessary bebt
While a short delay may have some benefits, prolonged waiting could lead to financial difficulties. For example, if your line of credit remains accessible, it might become tempting to incur debt you don’t truly need. It’s better to plan ahead and request the release immediately to avoid the risk of unnecessary borrowing and potential financial strain.
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Complications if the financial institution changes
If your financial institution changes its name or merges with another organization, it may become more difficult to locate your mortgage file and obtain the release. This could lead to unnecessary delays and complications in the process.
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Issues for heirs in the case of an estate
In the event of an estate, heirs may face difficulties obtaining the release if the file cannot be located by the responsible notary. They would then need to request proof that the property is free from any financial encumbrances, which can be significantly more costly than simply paying the release fees. It’s something to keep in mind for future planning.
Mortgage release: how much does it cost?
To complete the release of your mortgage, several fees will need to be paid. These costs can vary based on your specific situation, its complexity, and the professional you choose to work with.
Cost of registering
You will need to pay for the registration of the cancellation in the land registry. This fee is approximately $150. For more detailed information on the fees for various services, you can consult the Quebec Land Registry.
Notary fees
In addition to registration fees, you will also need to cover the notary’s service fees. These fees typically range from $450 to $750, though the amount may vary depending on the notary. It is recommended to contact different professionals to compare their rates.
Penalty fees
If you pay off your mortgage before the end of the agreed-upon term, your lender may charge a penalty for early repayment. Be sure to review your mortgage contract to understand the specific penalties that may apply in your case.
Who pays for the release?
Unlike most real estate transaction fees, which are typically paid by the buyer, the cost of the mortgage release is the responsibility of the seller. Therefore, the seller must cover all related fees and charges associated with the release.
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