When most people think of a mortgage, they picture a formal document registered on title that creates a legal charge against real property. But Canadian law also recognizes another type of mortgage known as an equitable mortgage. Unlike a legal mortgage, an equitable mortgage can exist even if the agreement is informal or not properly registered, so long as it shows a clear intention to treat the property as security.
Whether you are a lender, borrower, or legal professional, understanding how equitable mortgages work can help you protect your interests and avoid costly legal disputes.
At Legalbird, our civil litigation lawyers have experience navigating complex mortgage disputes, including those involving informal or unregistered agreements. If you are unsure whether an equitable mortgage applies to your situation, we can help you assess your rights and take the proper legal steps to protect your position.
What Is an Equitable Mortgage?
An equitable mortgage is a security interest in property that is enforceable in equity even though it does not meet the formal legal requirements of a registered mortgage. In other words, if someone agrees to use their property as security for a debt but fails to complete all the legal steps, a court may still enforce the agreement if it finds that the parties intended to create a mortgage.
Equitable mortgages are often recognized where the intention is clear but the documentation is informal or incomplete.
How Are Equitable Mortgages Created in British Columbia?
In British Columbia, an equitable mortgage can arise even when the legal steps required for a registered mortgage have not been completed.
Courts focus on the intention of the parties and whether the property was clearly understood to serve as security for a debt. Below are three common ways an equitable mortgage may be created under BC law:
1. Written Agreement to Provide a Mortgage
An equitable mortgage can be recognized when a borrower signs a written agreement promising to give a mortgage in the future. If the agreement is supported by consideration, identifies the property, and shows an intention to secure a debt, the court may enforce it as an equitable mortgage—even if it was never registered.
2. Deposit of Title Documents with the Lender
Although this method is less common today, historically a borrower could create an equitable mortgage by delivering title documents to the lender as a form of security. While modern electronic land title systems have reduced this practice, the underlying legal principle is still valid in equity.
3. Conduct or Circumstances That Show a Mortgage Was Intended
Courts in British Columbia may also find an equitable mortgage exists based on how the parties behaved. If one party relied on a promise or understanding that the property was security for a debt, and it would be unfair to deny that promise, a judge may impose an equitable mortgage to prevent injustice.
Essential Elements of an Equitable Mortgage
For an equitable mortgage to be enforced by a court in British Columbia, certain key elements must be clearly established. These elements help the court determine whether there was a genuine intention to treat the property as security for a debt, even if a formal mortgage was never registered.
To be recognized, an equitable mortgage typically requires:
Mutual Intention to Create a Mortgage
Both parties must have clearly intended to treat the property as collateral for a loan or obligation.
Identification of the Secured Property
The agreement or conduct must identify the specific real estate being used as security.
Certainty of Terms
The agreement must outline important details such as the amount of the debt, repayment terms, or other secured obligations.
Without these essential elements, the court is unlikely to find that an equitable mortgage exists. Clarity, documentation, and consistency in conduct are key to enforcing mortgage rights under equity.
Legal Authority on Equitable Mortgages in Canada
One of the most authoritative sources on mortgage law in Canada is Falconbridge on the Law of Mortgages.
According to Falconbridge:
“An agreement in writing duly signed, however informal, by which any property is made a security for a debt due or a present advance, creates an equitable charge upon the property.”
This means the agreement need not be in traditional mortgage form, but it must reflect a serious and specific intention to charge the property as security. This principle was upheld in the Ontario case Re Sikorski (1978), 21 O.R. (2d) 65, where the court stated:
“The important feature of an equitable mortgage is the common intention of the parties to the mortgage contract to make the property in question security for the debt due. If this intention is lacking, an equitable mortgage cannot be said to have been created.”
Case Example: CIBC v. Smith (1985)
The case Canadian Imperial Bank of Commerce v. Smith, 1985 CanLII 588 (BC CA), is a key example of what can go wrong when vague language is used in a security agreement.
In that case, the borrower signed a letter agreeing not to deal with his real estate without bank approval and promised to provide “collateral mortgage security” upon request. However, the agreement did not specify the property, nor did it clearly show that both parties intended to create a mortgage.
The British Columbia Court of Appeal found that the letter lacked the certainty and mutual intention required to form an equitable mortgage. As a result, the bank’s claim to the property failed, and another creditor (the City of Vancouver) was entitled to the proceeds of the property’s sale.
This case is a cautionary example that equitable mortgages require more than vague promises—they require clarity, specificity, and shared intent.
Why Equitable Mortgages Matter in BC
Equitable mortgages are an important legal tool in British Columbia because they allow courts to recognize mortgage rights even when formal steps, like registration, have not been completed. These claims often arise when a borrower informally promises to secure a debt with property, or when paperwork is incomplete, but the parties clearly intended to treat the property as collateral.
Equitable mortgage disputes commonly surface in complex legal situations, including:
- Informal or unregistered security agreements
- Real estate transactions involving competing claims
- Insolvency proceedings where creditors seek priority
- Family law cases involving shared property interests
In these situations, the ability to prove or challenge the existence of an equitable mortgage can make a significant difference in the outcome of a dispute. For lenders, borrowers, and anyone relying on unregistered property agreements, understanding how equitable mortgages are recognized by BC courts is essential for protecting financial and legal interests.
Tips for Lenders and Borrowers Dealing with Equitable Mortgages
Equitable mortgages can create legal rights and obligations even when there is no formal registration on title. Both lenders and borrowers in British Columbia should take extra care when dealing with informal agreements that involve real property as security.
For Lenders
- Put all security agreements in writing to help establish clear intent.
- Identify the specific property being offered as collateral in every document.
- Register the mortgage with the Land Title Office whenever possible to protect your interest.
- Avoid relying on emails, verbal agreements, or internal memos as evidence of security.
For Borrowers
- Read all documents carefully, even if they appear informal or non-binding.
- Be cautious about signing letters or agreements that mention “security” or “collateral.”
- Understand that courts may treat these informal documents as proof of an equitable mortgage.
- Consult a lawyer before agreeing to use your property to secure any loan or obligation.
Taking these precautions can help prevent disputes and protect your legal position in any equitable mortgage claim.
Contact Legalbird Today
An equitable mortgage can arise without the formalities of a registered legal mortgage, but only if there is clear evidence of mutual intention and a specific agreement regarding the property. Courts will not impose an equitable mortgage based on vague or one-sided statements. The case of CIBC v. Smith is a strong reminder of the importance of clarity and specificity in mortgage and security agreements.
If you need assistance drafting or reviewing mortgage agreements, or if you’re involved in a dispute involving equitable claims, our team at LegalBird is here to help. Our civil litigation lawyers in British Columbia can assess your situation, explain your rights, and guide you toward a practical resolution.
Book your free 30-minute consultation today to discuss your case with a member of our legal team.
