Why is there a Notice of Security Interest on My Home?

 

Written by on November 6, 2017

Renting water heaters in residential properties is quite common in Ontario. Companies are now beginning to offer rentals of furnaces and air conditioners as well, sometimes with rent-to-own options. Often these companies will send door-to-door salespeople around to pitch the rental contracts at potential customers.

Like any legal contract, it is important to consider an equipment rental contract carefully before signing it. Many clients are not aware that a company offering rental equipment can register a lodgement on title, often called a Notice of Security Interest, against the property for the value of contract (not necessarily the value of the equipment). Often the legal language indicating the company will do this is buried in the contract and an average layperson may not be aware that it is there. Any type of lien or lodgement on title could have serious consequences for a homeowner.

Often owners are discovering these heating/cooling equipment Notices of Interest when they go to sell or refinance their property. A lien, security interest or other title lodgement prevents a property from being sold or refinanced unless it is paid out in full or “postponed”. A sale will require payment of the lien or security interest, as no buyer will agree to purchase a house with a lien or other lodgement on title that does not belong to them. A refinance transaction may only require a “postponement”—a new mortgage can be registered, but the lodgement will remain on title if a postponement occurs. Some mortgage lenders may agree to this, others will not, and may require the lodgement to be paid out.

It can be very expensive to pay out or buy out the contract, as it was noted previously the value of the lien is often the value of the contract—that is, the amount the company will expect to be paid for the rental fees over the course of the contract—not the actual sale value of the equipment itself. There could even be penalties for breaking the contract before its end date. Home owners could find themselves paying thousands of dollars for equipment that is several years old and would not be worth what they are paying for it even brand-new.

In essence, a lien or security interest of this kind will stranglehold an owner’s ability to do what they want or need to with their property without dealing with the heating and cooling equipment company first. Even if only a postponement is required, it costs money—extra legal fees for the homeowner and usually a fee to paid to the equipment company as well, to process the transaction. It adds an extra hiccup to the selling or refinancing process and it can be upsetting for a homeowner to discover a lien or security interest that they did not previously know existed.

How can this be avoided? Certain companies place liens or security interests as a matter of course—Reliance Home Comfort is one such company. If you have a furnace, air conditioner, or water heater rental or rent-to-own contract with this company, you have a Notice of Security Interest or similar lodgement on title on your house whether you are aware of it or not. Caution needs to be taken with all long-term equipment rental contracts, as it is likely that the company will want to register some type of interest against the property. Wherever possible, purchasing equipment outright will avoid a lodgement on title. Some rental contracts do not include any registration of interest on the client’s property, but must be investigated on a company-by-company basis. If a rent-to-own contract is desirable or necessary in your situation, keep in mind the ability of the company to register an interest in your property and ask any questions you feel need to be answered before proceeding.

Questions about a Notice of Security Interest or a refinance transaction? Contact us!

 

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