- Priority is generally determined by order of registration under Ontario’s land titles system.
- A postponement can change it, and must be in writing and registered.
- Construction liens, execution creditors and certain Crown claims interact with mortgage priority.
- A subsequent mortgagee facing enforcement must decide whether to redeem the prior mortgage.
The general rule
Under Ontario’s land titles system, priority among registered charges is generally determined by the order in which they were registered. A first mortgage registered before a second takes priority over it.
That is why the date and time of registration matter, and why a lender advancing funds should confirm registration rather than assume it.
The rule is straightforward. The exceptions are where the money is lost.
Postponement and subordination
Priority can be altered by agreement. A prior mortgagee may postpone to a later charge, typically as part of a refinancing or a construction advance.
A postponement must be documented and registered to be effective against third parties. An oral understanding between lenders is not a postponement.
A lender asked to postpone should understand exactly what it is moving behind, and for how much, because the answer determines its recovery if the borrower fails.
What else competes
Construction liens can take priority over advances made after the lien arose, which is why lenders on construction files require clear title searches before each advance.
Execution creditors with writs filed against the borrower affect the ability to convey clear title.
Certain Crown claims, including for unremitted source deductions and HST, can rank ahead of secured creditors in defined circumstances.
Property tax arrears generally rank ahead of mortgages and can lead to a municipal tax sale.
Being a second mortgagee when the first enforces
A subsequent mortgagee served with a Notice of Sale has a decision to make, and a limited period in which to make it.
It can allow the sale to proceed and take whatever remains after the first mortgage is paid, which on a thin-equity file may be nothing.
Or it can redeem the first mortgage, taking over that position and carriage of the enforcement, which requires the funds but preserves the ability to control the sale.
That calculation should be run on a current valuation as soon as the notice arrives, not once the sale is under way.
Common questions
Does registration order always decide priority?
Generally, but postponements, construction liens, certain Crown claims and tax arrears can alter it.
Can a first mortgagee postpone informally?
No. A postponement should be in writing and registered to bind third parties.
What happens to a second mortgage on a power of sale?
It is paid from surplus after the first mortgage and enforcement costs, if there is any.
Should a second mortgagee redeem the first?
Only where the equity supports it. It requires funds and should be assessed on a current valuation.
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