Expert: Cinzia Dalgarno - 8/20/2009

Question
The question I have is a bit confusing but Hope you are able to help me understand how this works.  If a Foreigner is the owner of a Canadian Incorporation and states that he is the only Shareholder and has a Canadian Director elected, can that said Foreigner hold a Canadian Mortgage on Farm Land under that Incorporation?

Also when a transfer from Bank A to private lender B, of a Mortgage occurs does the actual land owners have to sign any or all documents, or is a new document created and the land owners have to sign of initial any or part of the new document?

Answer
Hello Kathy.
A mortgage can be in a company name. The credit will be authorized, however, based on the strength of the covenantor(s), who would be directors of the company. I'm assuming that by "Foreigner" you mean non-resident. For mortgage purposes, a non-resident is someone who does not file taxes in Canada.
There are a few details that aren't clear to me:
-who will the covenantor(s) be on this mortgage - the Canadian Director that was named, or the non-resident? If it is the Canadian Director, then they would have to be named as having Authority To Borrow; their personal credit would need to be clean and strong, and financial statements of the company would be required.  If it was the non-resident who would be the covenantor, then the mortgage would not likely be allowed for more than 65% of the property value, indeed would likely be capped at 50%. Again, the same documents would be required, however the strength of the applicant would be less important, given the lower loan to value.

-is the farm land to be for business purposes or residential purposes? If it is for residential purposes, most banks will likely only lend on the value of the house plus 5 acres, no other outbuildings (barns, etc) being included in the value. If it is to be a "farm" mortgage (a working farm), then there is a whole different set of requirements needed.

As to the transfer of the mortgage from a bank to a private lender; if a transfer of mortgage takes place, there is a specific document required to be signed (usually a transfer of a freehold estate Form A). Further, all persons on title (or, in the case of a mortgage where the owner is a company, all directors of the company) must be on the mortgage; conversely, a lender can request you have covenantors added to your mortgage (to give the application strength, and give the lender more comfort in lending you the money) - these covenantors do not typically go on the title of the property. (If you are considering using a private lender, I would urge you to find a mortgage broker that you trust; many of us have a wealth of knowledge, as well as relationships with a variety of lenders, that will ensure you get the best possible product for your needs.)

A transfer of mortgage can only occur when the new lender accepts the Standard Mortgage Terms (being the general mortgage policies, rules, regulations) of the initial lender, since a transfer is simply that - no change at all to the mortgage itself, simply a change in the mortgagee. When you transfer your mortgage to a new lender, you will likely be asked to sign a renewal agreement, choosing the new term/rate for the mortgage. I have not known any private lender to allow a transfer of mortgage, since typically, private lenders have very unique and specific mortgage terms, and do not register them with the various Land Titles agencies, instead including them with the mortgage commitment.

Having said that, whether you are transferring a mortgage from one lender to another, or refinancing your existing mortgage (through the same lender or a new one), all persons on the mortgage must initial and sign new documents, be they the mortgage documents or the transfer documents.

A final note to let you know that power of attorneys are not accepted by most banks in regards to signing mortgage documents.

Hope this was helpful to you,