Covenant Change Lawyers Release Of Covenant In Alberta
Each industry has its own jargon and language. Often this language causes confusion with people outside that industry. The mortgage industry often tells clients that they require a covenant change, or a release of covenant. However, when they call the lawyer, they often lack an understanding of what their lender requires. When someone calls asking about a covenant change, it may mean many different things from a legal perspective. Please find examples of these below. Often we send people back to their lender to seek clarity as to what the plan entails. The covenant change lawyers at Kahane Law Office help make sense of your situation and complete the legal aspects as needed. With a Calgary law office and and Edmonton law office, we provide help across the province with reasonable flat rates.
What Is A Covenant Change
The word “covenant” means agreement. Therefore, a covenant change means changing an agreement. In the normal context, this means that someone is changing their agreement with their mortgage lender. However, there are many terms that make up a mortgage. Typically, the one that lenders refer to when using this language is that they intend to release one of the borrowers on the mortgage from any future obligation under the mortgage. See details below, however, most often lenders use this term but really mean that the intent is to terminate the old mortgage and start a brand new one with the remaining borrower(s). This more closely resembles a refinancing of the property than a covenant change.
What Is A Release Of Covenant
A release of covenant typically refers to a letter or signed agreement. The letter or agreement releases one (or more) of the borrowers on a mortgage from any future obligations. These letters do not impact or change ownership on title to the property. This means if the people remaining in contract with the lender what to remove that person from title, that is separate from the release of covenant. Once released from the covenant, the lender lacks future ability to go after the released person for any debts owing under the mortgage.
Why Use A Release Of Covenant Or Covenant Change?
Many reasons exist for people calling us for a covenant change or for a release of covenant. They always involve removing someone from title. Sometimes, they also include adding a new person to title. From a legal perspective, the reason why has little impact on the process. In terms of reasons, we usually see them, for example, when a:
- Primary borrower no longer requires a cosigner;
- Couple who borrowed for a home together end their relationship and one person takes over the home/mortgage;
- Newly married couple wants to add someone to title;
- Parent, added to avoid Dower Rights, no longer needs to remain on title; and lastly
- Co-investor no longer wishes to remain an investor in a property.
Types Of Covenant Changes In Alberta
When people call for a quote for a covenant change, we run through several questions to determine which of the following apply. Most often, the person calling lacks the information from their lender to know which process the lender intends to use. Calling the lender back and asking for details often helps. As real estate lawyers, we lack the ability to determine which approach the lender wishes to take, unless we receive instructions from them. As with most legal matter, pros and cons exist for each process. In terms of potential courses your lender may take, we often see several. For example, the following make up the majority of situations.
Just A Release Of Covenant
In this case, a borrower (or more than one) receives a letter (the release of covenant) releasing them of any future obligation. That person remains on title, even though they no longer remain liable under the mortgage. This is the least expensive process in that the borrowers often incur no costs at all. As to when this situation occurs, most often it involves a co-signer. For example, situations where a parent acts as a co-signer for a child to buy a home and the lender no longer requires the parent for the child to qualify. Sometimes, the child wants the parent to remain on title, but the parent no longer wants the financial obligation. Historically, this was the form most frequently used.
Release of Covenant & Remove Name From Land Title
This process is the second least expensive for covenant change. In this case, the lender issues the letter or agreement (the release of covenant) releasing one or more of the borrowers from mortgage obligations. The remaining person with obligations to the lender, also wants the person removed from title. (Mortgages include a “Due on Sale” clause. This means that to change title, for example remove someone from title, the borrowers require lender approval.) If approved, the person coming off title, should also be removed from having obligations under the mortgage. Here, the lender provides the release and the lawyers change the title. The cost of a title change (click here for flat rate fees) depends on the value of the property in Alberta. In this case, if one pulled the mortgage from title, it still shows the released borrower’s name on the mortgage document.
Lawyer Changes Titles & Bank Changes Mortgage
The next least expensive process involves when the lender approves the change of ownership and borrowers. The lender then requires the borrowers to attend at a lawyers office to change title to the property into the remaining borrowers. After the change to the title, the lender then internally replaces the old mortgage with a new mortgage. Sometimes no extra costs apply to the borrower. Alternatively, in many instances, the lender charges the borrower for the cost of registering the new mortgage and discharging the old mortgage. In this situation, the former borrower’s name no longer appears on title or the mortgage document.
Lawyer Changes Title And Acts On Refinance
Lastly, and the current most frequently used covenant change, the lender requires the borrowers to hire a lawyer to both change the names on title as well as register and new mortgage and discharge the old one. Unfortunately, this option is the most expensive one since legal and land title fees apply to both the change in ownership on title as well as the registration of the new mortgage. Fortunately, both of these steps occur at the same time, making it quicker than situations where the lender changes the mortgage. It also means that protection exists for the person removed from title as both steps occur at the same time. In these situations, always ask your lender to ensure no payout penalty applies to your situation.
Hiring Lawyers For A Covenant Change Or Releases Of Covenant
Unless you want a better legal understanding of things, usually no formal requirement exists to hire a lawyer for a simple release of covenant. Certainly, we then help people with the title changes as needed. If needed for the refinancing version of a covenant change, we provide that service at a flat rate fee. For more information, send us an email. This often provides you with the most information and quickly. Please email us directly at this address. However, we also love calls form our clients. Call today to speak to us about assisting with this process in Alberta. Please reach out at 403-225-8810 locally in Calgary, Alberta and 780-571-8463 if you need help in Edmonton or surrounding area