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Some lenders may be unfamiliar with section 12(3) of the Ontario Mortgages Act. It allows the Superior Court of Justice to order a mortgage discharge where the mortgagee is dead or cannot be found, or where “from any other cause a proper discharge cannot be obtained, or cannot be obtained without undue delay”. Either way the court will permit the amount due under the mortgage to be paid into court; it then grants the discharge and pays out those same amounts, with interest, to an entitled mortgagee or Estate executor or administrator, as the court sees fit.

The nuances of this remedy were the focus of Losani Homes (1998) Limited v. Paris Land Development Ltd., which involved a $3 million vendor-takeback (VTB) mortgage on a property that had been sold in 2016 for $6 million. A dispute arose between the parties about whether certain subdivision conditions had been satisfied so that the VTB mortgage could now be discharged. When the seller/mortgagee refused to do so, the buyer brought a court application for a partial discharge under s. 12(3) of the Mortgages Act.

The seller objected, noting that under the original agreement with the buyer, the circumstances allowing for partial discharges were clearly defined; if the court granted a discharge now, this would undermine the bargained-for terms of the parties’ own agreement.

The court accepted the seller’s logic. It emphasized that s. 12(3) is discretionary and is intended for scenarios where a proper discharge cannot be obtained – not merely where it is contested. Although the section is “highly discretionary and potentially applicable to a broad range of situations”, it does not give the court an open-ended right to override negotiated contractual terms, especially where – as here – both parties were sophisticated and had lawyers.

Losani is one of several recent cases on the workings of s. 12(3). In an earlier one called NJS Midtown Portfolio Inc. v. CMLS Financial Ltd., the court clarified that s. 12(3) does not give the court broad general discretion to grant a mortgage discharge in just any circumstances. In that case the commercial seller was not delaying or obstructing the discharge unreasonably; its refusal was based on what the court found were legitimate contractual grounds. In 1414391 Ontario Ltd. v. Graff, the court held that the term “other cause” in s. 12(3) can cover cases where the mortgagee refuses to provide a requested discharge statement; in Sub-Prime Mortgage Corporation v. 1219076 Ontario Limited, it was held to apply to a situation where the amount owing under the mortgage was in dispute.

For mortgage lenders, these cases collectively reinforce the following key points:

• The remedy under s. 12(3) of the Mortgages Act is only available in narrow circumstances, including where the mortgagee unreasonably refuses to give a discharge.
• The court’s power is highly discretionary and cannot be used simply because obtaining a discharge is challenging.
• Courts will refuse to make an order if it would circumvent the terms of the mortgage documents that the parties negotiated and agreed to.

See the decisions in:

Losani Homes (1998) Limited v. Paris Land Development Ltd., 2025 ONSC 1036; Sub-Prime Mortgage Corporation v. 1219076 Ontario Limited, 2019 ONCA 581; NJS Midtown Portfolio Inc. v. CMLS Financial Ltd., 2020 ONSC 3973; and 1414391 Ontario v. Graff, 2015 ONSC 7201.