The Mortgage Instructions Toolkit provides practical guidance for lawyers responding to lender requests in residential real estate transactions. This page addresses post-closing disclosure.

The situation

A lawyer’s mandate to represent the borrower and the lender usually ends when the transaction has closed, deliveries required for the closing have been completed, undertakings have been met, and accounts have been reconciled.

Lender instructions may direct lawyers to continue to look out for lender interests after the transaction has closed. This may include sharing information about any changes in the borrower’s financial circumstances and any new vendor take back mortgages or other financing.

This is beyond the accepted scope of a lawyer’s responsibilities to the lender.

Sample lender instructions

Unless our Letter of Direction indicates that Vendor Take Back (VTB) or other secondary mortgage financing is permitted, it is your responsibility to ensure that there is no VTB or other mortgage financing. If you are aware or become aware of any VTB or other mortgage financing which security is to be registered either concurrently with our mortgage or at a time following registration of this mortgage, you are required to immediately advise us.

You undertake to notify us immediately upon receiving any information alleging any discrepancy of title defect or any encumbrance loss of priority of the mortgage.

Practice guidance

• Strike out lender instructions obligating you to assume reporting obligations after you have completed the transaction and related tasks. Return promptly the amended instructions with a letter explaining what you have deleted. 
• Outline any remaining tasks, if any, in your final report or closing letter to the lender and clearly state that this ends your retainer. This should conclude your reporting obligations to the lender.

Note: When Lender Instructions prohibit secondary mortgage financing, it is not ethical for you to be part of a new secondary mortgage financing transaction after you have completed the work for the lender. Should you do so, you may be subject to professional discipline and liable for damages. For example, perhaps a client borrower’s parents have loaned money for the purchase of the property and, after closing, decide they want to secure the loan by registering a mortgage on title. Although you have completed all elements of the first mortgage transaction and sent your report letter to the lender, you still have a duty to your former client not to register a new loan agreement on the property.