Remember the Umbrella, it might just start “raining liens”: An action by one is a benefit for all.
When acting for a lender or a borrower it is fundamentally important to remember the presence of section 61 of The Builders’ Liens Act (Manitoba) (the “Act”), namely:
Action for benefit of all lienholders
It is not necessary for a lienholder commencing an action to realize his lien to make other lienholders parties to the action but all lienholders required to be served with a notice of trial under section 63 shall, for all purposes, be treated as if they were parties to the action.
Thereby section 61 of the Act permits other lien claimants to enjoy the priority of the registered lienholder notwithstanding the other lien claimants have not commenced an action to realize a lien.
As a lien must be registered and as no action may be commended under the Act to enforce a lien unless a claim for lien with respect to a lien is registered accordingly, the starting point for commencing action, being the registration of a lien at the Property Registry and the corresponding statutory priority of that registration, is critical to the subject of this paper.
Why is section 61 of the Act and registration important?
Imagine a property that is in the midst of being refinanced, the mortgage is registered second to an existing lien; without considering section 61 of the Act and provided the to be made mortgage advance is sufficient to payout all required registered charges, one could easily conclude the registered lien may be paid from the mortgage advance. STOP. The registered lien should not be paid from the mortgage advance as the lien has priority over the mortgage by virtue of the mortgage being registered subsequent to it and thereby by virtue of section 61 of the Act an “other claimant” could enjoy the same priority as the registered lien holder notwithstanding the “other claimant” does not enjoy the same registered on title priority as the lien holder.
But wait, there is more…
In the example above we considered a new mortgage being registered second to an existing lien, however if we consider an example where a lien is registered second to either a new or existing mortgage we must still give section 61 of the Act consideration. Notwithstanding the lien is now second to the mortgage, if the mortgage has not advanced or if the mortgage may re-advance, the lender should not advance or re-advance until that lien is paid and discharged as that lienholder and any “other claimant” would have priority over the advance or re-advance regardless of the registered on title priority (in our example being second in priority to the mortgage). In this context the law on the priority of advances must be read in conjunction with section 61 of the Act.
From a lender’s perspective priority must be obtained, preserved and maintained, thereby money from the mortgage advance should not be used to pay out a lien as the lien, regardless of the registered on title priority of the lien, could disrupt the priority of the lender’s mortgage advance as against any and all other lien claimants; from a borrower’s perspective the borrower must find funds from an alternative source to payout out the lien before receiving the advance that it would otherwise have been expecting.
The presence of section 61 of the Act has been referred to as being the “umbrella” as “other claimants” may shelter beneath the “umbrella” of the registered lienholder; while the writer is uncertain as to the origins of referring to section 61 as being an “umbrella” reference to same appears as early as January 2003 in a Law Society of Manitoba presentation by Richard Swystun, Betty Johnstone, James Edmond and Douglas Bedford.
If a lien is present do not advance the mortgage, have the lien dealt with accordingly and advance the mortgage thereafter; while following this rule will most certainly delay a mortgage advance it will protect you from a professional claim by virtue of ensuring priority maintained.
If it looks like it might rain, don’t forget the umbrella, it might just start “raining liens”, you certainly don’t want to get caught in a storm!