This article will outline some of the terms that you should be familiar with so that you will be better prepared when discussing your condo mortgage with your lawyer—before you sign it.

Most mortgage documents are in fine print and are fairly detailed.  Do not assume that all mortgage documents are the same. The only way you can fully understand your mortgage contract is to have a competent and experienced real estate lawyer review it and interpret the key areas for you. In addition to differences in mortgage contracts, laws are always changing.

In any mortgage, there are these basic provisions: the date of the mortgage, the names of the parties who are signing, a legal description of the property, the amount of the loan, the payment terms including interest and frequency, the respective obligations of the lender and the borrower, and the signatures of all the parties. Some of the common clauses that you may find in the mortgage are discussed below.

Personal Guarantee
Under a mortgage, the borrower (mortgagor) is personally liable for the debt to the lender (mortgagee).  In the event of default, the lender can sue the borrower for the full amount of the mortgage; the lender is not obliged to commence foreclosure proceedings and take over the property or sell the property. In practical terms, however, the lender normally commences a form of foreclosure action to protect its interest as well as suing the borrower personally. If the property is sold, then the borrower would be responsible for the shortfall plus all the associated legal and other costs which the lender has incurred.
If you have a co-covenantor on the mortgage--someone else who covenants or promises that he/she will meet all the obligations of the mortgage--the lender can sue both the borrower and the co-covenantor for the debt under the mortgage. Sometimes the term guarantor is used instead of co-covenantor. In practical terms they are inter-changeable.
If you are married and are purchasing the condominium under your personal name, the lender will frequently insist on your spouse’s signing as a guarantor or co-covenantor, regardless of your creditworthiness. This is to protect the lender under the matrimonial or family relations legislation of the province. In the event that a separation or divorce occurs, the lender does not want its property security to be compromised.

Insurance
This clause requires that the mortgagor insure the condominium against fire. The insurance policy must show that the mortgagee is entitled to be paid first from the mortgage proceeds in the event of a claim on the policy.
There is also a provision in the mortgage which sets out the amount of the insurance. It states that if you fail to pay the premium, the mortgagee can do so, or if you fail to get sufficient insurance, the mortgagee can do so, and all the additional premium costs can be added onto the principal amount of debt of your mortgage.

Maintain Property
This clause in the mortgage states that you are required to keep the property in good repair. The reason for this provision is that the lender obviously does not want the property to deteriorate through neglect and therefore reduce its property value, compromising the value of the security.

Requirement to Pay Taxes
This clause states that you are obliged to pay all property taxes when they become due, and that if you do not do so, the lender is entitled to pay the taxes and add the amount paid in taxes to the principal of the mortgage. Many lenders attempt to avoid any problem with taxes by having a separate tax account set up at the time you take out the mortgage. This means that you pay an extra amount every month on your payment to the bank for a tax portion which goes into that account, and once a year the lender pays the property taxes directly. In many cases you can negotiate out of this prepayment provision and look after the taxes yourself. Some lenders require proof that taxes are current and have been paid every year.

Requirement to Keep Any Subsequent Mortgages in Good Standing
This provision states that you must maintain all of your financial obligations on the second and third mortgages so that they do not go into default. If they do go into default, foreclosure proceedings could occur. If the property was sold, the first mortgage would be paid off first, followed by the second and the third.

Prohibition against Renting Out Premises
Some mortgage documents state very clearly that the whole premises cannot be rented out. The policy does not prevent renting a suite in the house as a mortgage helper.
However, there are exceptions, especially if you are buying investment property.

Must Comply with All Laws
This provision would advise that all federal, provincial, and municipal laws concerning the use and occupancy of the property must be fully complied with. This is an important provision if you are intending to rent out the property. There may be a prohibition against renting the property if it is not zoned for that purpose. This is common in recreational areas. Some municipal zoning bylaws prohibit rental of secondary suites in the primary single family residence. You need to check out your rights before you buy, by obtaining advice from an experienced real estate lawyer.

No Urea Formaldehyde Foam Insulation (UFFI)
Many mortgages state that no UFFI is permitted in the premises at the time the mortgage is granted or subsequently.

Prepayment Privileges
It is important that you make sure the prepayment privileges for a closed fixed-term mortgage are set out clearly in the agreement, eg you prepay one a year to a certain percentage of the original mortgage amount, eg 10-20 per cent without penalty.

Assumption of Mortgage Privileges
Assumption of mortgage privileges should be set out clearly in the mortgage document. This means that a future buyer could assume your mortgage if you wanted, subject to credit qualifications.

Quiet Possession
This provision states that unless the mortgagor defaults, the mortgagee will not interfere in any way with the peaceful enjoyment of the property by the mortgagor. In practical terms this means that the mortgagee cannot enter the premises.

Acceleration Clause
This clause states that if the mortgagor defaults on any of the terms of the mortgage agreement, then at the option of the mortgagee the full amount outstanding on the principal of the mortgage plus interest is immediately due and payable. This clause is not applicable in all provinces.  CL