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A Discharged Mortgagee Seeks An Interest In Security Posted Pursuant to Section 24 Of The Builder’s Lien Act

By Shane Coblin (posts)

In a case being heard before the B.C. Supreme Court this week, a mortgagee who has discharged its security  is seeking to now assert priority over funds previously posted in court to secure a lien claim.

Background

Section 24 of the Builders Lien Act (“BLA”) provides that a person against whose land a claim for lien has been filed, may apply to court to have the claim of lien canceled by giving sufficient security for the payment of the claim.

In order to complete pending sales of the strata units, the developer in this case brought an application under section 24 seeking to cancel a claim for lien upon posting the required security.  The order was eventually made –  with the consent of the lien claimant – and the claim for lien was discharged.  In the evidence before the court, no mention was made of the mortgagee or of the source of those funds to be posted in court.

Once the claim for lien was canceled from title, the strata unit sales closed and, and despite the fact that the mortgagee’s loan was never fully repaid by the developer, it entirely discharged its security from the each strata lot.  No foreclosure proceedings were commenced.

In due course, the lien claimant commenced proceedings to enforce its claim for lien and for payment out of court of the security that had been posted.  The mortgagee has now brought an application claiming that, although it has completely discharged its security, it is entitled to the funds posted in court in priority to lien claimant.  The mortgagee relies on section 32 of the BLA.

Issue before the court

The court must decide whether a mortgagee can take advantage of section 32 of the BLA to create a security interest for it in funds posted in court to secure a claim for lien.

It is the author’s opinion that a mortgagee has no right to claim an interest in funds posted as security for the claim of lien.  A mortgagee’s security is in the land, and an order under section 24 of the BLA does nothing to interfere with that security; it merely creates a separate fund to secure a lien claimant.  The mortgagee got what it bargained for.

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