What Is a Vendor Take-Back Mortgage in British Columbia?

A vendor take-back mortgage, often called a VTB, is a way of selling where you lend the buyer part of the price instead of receiving all of it on completion. You then hold a mortgage on the property you sold, and the buyer pays you over time.

It can help a sale go ahead, but it leaves you exposed to the buyer's ability to pay. This article explains how a VTB generally works in British Columbia, the risks, and what a lawyer or notary will help you put in place.

This article covers the law of British Columbia.

How a VTB works

With a VTB, the buyer pays part of the price in cash, usually with funds from a lender or their own savings, and you accept a promise to pay the rest. The promise is secured by a mortgage against the property. In practice you become a lender, with a lender's interests and risks.

The key terms are the amount, interest rate, payment schedule, term and what happens on default. These are set by agreement between you and the buyer, so they should be negotiated carefully and written down.

Putting it in writing and securing it

A contract respecting land is generally not enforceable unless it is in a writing signed by the party to be charged or their agent. There are other routes, such as the party doing an act or acquiescing in an act showing a contract was made, or the other party reasonably relying on it and changing position. Payment or acceptance of a deposit counts as such an act. You should not rely on these exceptions; a signed written agreement is the safer course.

The transfer itself must still be completed. A person transferring land in fee simple must deliver a transfer registrable under the Land Title Act. A notary public enrolled and in good standing may draw instruments relating to property that are intended, permitted or required to be registered, and so can a lawyer. A notary not in good standing must not act.

• A written agreement setting out the loan terms.
• A mortgage registered against the property, so your security is on title.
• Clear wording on payments, interest, term and default.
• Confirmation of where your mortgage ranks compared with any lender the buyer uses.

Risks to think about

The main risk is that the buyer stops paying. Your remedies depend on the documents and the facts, and can involve court. If a buyer asks for relief, the court may relieve against all penalties and forfeitures, on terms about costs, expenses, damages and compensation as it thinks fit. That means you should not assume every term in your favour will be enforced exactly as written.

Time limits matter. A court proceeding must not be commenced more than 2 years after the day the claim is discovered. Discovery is when the person knew or reasonably ought to have known that loss occurred, who caused it, and that a court proceeding is appropriate. There is also an ultimate limitation period of 15 years from the act or omission. If a defendant wilfully conceals the claim or misleads the claimant, the act or omission is treated as occurring on the discovery date.

A VTB can also be affected by the Interest Act. If a mortgage is not payable until more than five years after it was made, the borrower may, after five years, pay it off with three months' interest in place of notice, and no further interest is chargeable. Mortgages given by corporations and certain prescribed entities are excluded.

What to do next

• Decide how much of the price you are willing to lend and for how long.
• Learn about the buyer's finances and ask what they intend to do if they cannot pay.
• Have a lawyer or notary prepare the agreement and the mortgage for registration.
• Ask how your VTB will rank against the buyer's main lender.
• Speak with an accountant about how the arrangement affects your tax reporting.

Frequently asked questions