Protecting a second mortgagee’s priority over further advances on a first mortgage: First Accredit Mortgage Corp. v. Pitman-Jelley, 2026 BCSC 1029
Lenders with second (or subsequent) mortgage security generally assume that registration will automatically protect their priority over further advances made under a prior encumbrance. That expectation is only elevated when they have received a payout statement from the priority lender confirming the outstanding balance due and owing on the priority mortgage.
Unfortunately, subsequent lenders cannot rely solely on registration or the receipt of a payout statements from a prior lender to safeguard their priority. Additional steps are necessary to ensure their security is not eroded by further advances made by a prior mortgagee.
This issue is highlighted in the recent decision of First Accredit Mortgage Corp. v. Pitman-Jelley, 2026 BCSC 1029 (“First Accredit”).
Case Overview
First Accredit involved foreclosure proceedings on real property which was subject to:
- a first mortgage in favor of First Accredit Mortgage Corp., securing a loan of $860,000 (the “First Mortgage”);
- a second mortgage in favour of Sara Lenox Neher, securing a loan of $250,000 (the “Second Mortgage”); and
- a modification of the First Mortgage, which increased the loan amount to $1,300,000, and (the “Modification”).
The property was sold in the foreclosure for $1,200,000 which was sufficient to fully repay the $860,000. Unfortunately, there were insufficient funds to cover the Second Mortgage or the Modification and a dispute arose between the first and second mortgagees regarding entitlement to the remaining sale proceeds.
Ordinarily, priority would be determined by s. 128 of the Land Title Act and the Second Mortgage would have priority over the Modification advances as it was registered prior to the Modification.
However, s. 28 of the Land Title Act allows a mortgagee to maintain priority for further advances over subsequent mortgages and judgments that are “contemplated by and in accordance with” their mortgage, provided certain conditions are met. Those conditions are:
- the subsequent registered mortgagees or judgment holders agree in writing to the priority of the further advances,
- at the time the further advances are made, the registered owner of the mortgage has not received notice in writing of the registration of the subsequent mortgage or judgment from its owner or holder,
- at the time the further advances are made, the subsequent mortgage or judgment has not been registered, or
- the mortgage requires the registered owner of the mortgage to make the further advances.
In First Accredit, the first mortgagee acknowledged that it had actual notice of the registration of the Second Mortgage but the second mortgagee had failed to provide written notice of its security.
The court confirmed that notwithstanding actual notice, to ensure priority over further advances made a subsequent mortgagee must demonstrate that written notice was sent to and received by the prior mortgagee. Actual notice or merely inquiring about the payout of a prior mortgage was found to be insufficient and notwithstanding registration, the Second Mortgage did not have priority over the further advances made under the First Mortgage.
However, the court’s analysis did not end there. Although the First Mortgage contemplated further advances, the first mortgagee chose to make the further advances through the Modification, which altered certain terms of the First Mortgage and effectively created a third mortgage. As such, the court found that the subsequent advances were not made in accordance with the First Mortgage and as a result, s. 28 of the Property Law Act did not apply and the second mortgagee was entitled to the disputed funds.
Practical Takeaway
In First Accredit the second mortgagee was fortunate that the further advances were made under the Modification rather than under the terms of the First Mortgage. Had the advances been as contemplated by the First Mortgage, it would have retained priority over the second mortgagee as a result of the second mortgagee’s failure to provide written notice of registration of her mortgage.
This case underscores the critical importance of providing written notice to prior mortgagees. Lenders and their advisors should ensure that written notice is given to prior mortgagees when lending funds secured by a second or subsequent mortgage. In addition, where a priority secured creditor intends to make a further advance notwithstanding subsequent registrations, it is extremely important to ensure that the advances are made in accordance with the original charge to avoid the possibility that a “new” security agreement comes into effect which does not have priority.
Disclaimer: This content is provided solely for informational purposes and is not intended for use in any legal proceeding. You should consult a qualified lawyer for advice tailored to your specific circumstances.
