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Professional Standards Manual

Notice of Change: Information in this manual changed when new agency and disclosure rules came into effect on June 15, 2018. Learn more about the new rules.

Trading Services

4. General Information

(a) Contract Clauses - View Entire Section

(XVII) Financing Information - View Subsection
(9) Seller Taking Back Second Mortgage

It is absolutely imperative to state the exact amount and details of any first-mortgage financing ranking ahead of the second mortgage to be carried by the seller. Failure to do so could result in a buyer being able to finance a property via the first mortgage in excess of its value, leaving the seller in the bad position of having little or no equity left in the property to protect the seller’s second mortgage.

It is customary for mortgagees to stipulate that mortgage documents will be prepared by their conveyancer at the expense of the mortgagor. It is recommended that this provision be included in the Contract of Purchase and Sale whenever the seller and/or a private investor will be carrying or advancing mortgage money.


Some mortgages may contain a term that provides that the mortgage secures all amounts that the borrower may owe to the financial institution. If the first mortgagor initiates foreclosure, the amount secured by the mortgage may be the amount of the first mortgage as well as any other borrowings, including amounts owed on personal loans or credit cards.

Sellers willing to take back a second mortgage should consider inserting a term in the contract that prohibits the buyer from entering into a mortgage which contains such terms.


Seller To Take Back Second Mortgage Clause

The Seller will take back a second mortgage, in a form acceptable to the Seller (which form will be provided by the Seller on or before (date), and approved by the Buyer on or before (date), in the amount of (amount) at an interest rate of __ % per annum, calculated (select either half-yearly or monthly)not in advance, with a ___-year amortization period, ___ -year term and repayable in blended payments of $ (payment) per month, including principal and interest (plus 1/12 of the annual taxes if required by the Seller, if not already being collected by the first mortgagee). Such second mortgage will provide that if the Buyer disposes or agrees to dispose of the property, the full balance will immediately become due and payable at the Seller’s option.

The Seller will draw and register the mortgage at the Buyer’s cost. This condition is for the sole benefit of the Seller.

The Buyer hereby consents to the Seller obtaining a credit report on the Buyer. Subject to the Seller approving the Buyer’s credit report on or before (date)This condition is for the sole benefit of the Seller.

The Seller’s second mortgage is to rank after the (select either new or existing) first mortgage of no more than $(amount) at ___% interest with a term due date of (date) .

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

If the seller has not sought legal advice before signing the offer, a subject clause such as the one here should be added allowing him or her to obtain such advice.