Did you know a lender doesn’t actually have to fund your mortgage? What really happens when a lender won’t fund on closing day in BC?
Even if you’ve “done everything the lender asked,” funding is never guaranteed until money actually lands with your BC Notary or conveyancing lawyer. Lenders don’t actually have to fund a mortgage, even if you have done all the things you were asked to do to qualify for it. Porting mortgages is popular, but can encounter failures when the new property looks nothing like the old one. Mortgage instructions can come too late; surprises on inspections or appraisals can kill a qualification, and lenders can freeze lines of credit you expected to be able to use. They can also decline to advance if you fail to meet last-minute qualification criteria. It doesn’t happen all the time, but it’s important to have a backup plan well before completion.
A real-world scenario
One of the more difficult things we deal with is when clients think they have a plan with their lender and it all falls apart. This can leave clients with nowhere near enough money to complete on their transaction, and no way to get the money in a reasonable timeframe.
Our clients found out the hard way this week that a lender will never guarantee that they will fund a mortgage, even if the buyer has done all the things the lender has asked them to do.
In this case, a lovely couple was downsizing – selling their long-time, huge family home and buying another smaller one that was more suitable for them now that their kids were off on their own.
Frozen Lines of Credit
Our clients had a combination mortgage/line of credit product registered on title to the home they were selling. They had talked to their lender about using their line of credit to fund the last bit that they would need to buy their downsized home. The lender had left them assured that their line of credit would remain available to them for this new purchase. The clients signed a contract for their new home, thinking their funding was all sewn up.
But when the payout statement arrived, the lender required full payout and closure of both the mortgage and the line of credit.
The line of credit was frozen immediately and the clients were unable to access the funds in it for their new purchase.
When the clients asked for a new mortgage instead, the lender said they could not have a new mortgage either – they no longer qualified for any new funding from this lender. This all surfaced days before completion.
A failure to communicate can make a lender unwilling to fund on completion day in BC
Sometimes mortgage funding fails because the client, the broker and the lender are not all talking about the same thing. Occasionally, clients do not understand what their lender or broker is asking of them. That can lead to the client giving the broker and the lender wrong information, or missing information, leading to delays or total failures.
Sometimes clients do not have the paperwork they are being asked for, and cannot meet the lender’s conditions. They might not understand this until it’s too late.
And sometimes information is being asked of clients to meet certain criteria for the lender, and that information arrives too late and doesn’t meet the lender’s criteria after all.
All BC Notaries and lawyers are required to disclose information that could affect the lender’s interests and security. We cannot keep that information from a lender.
Things can change with your deal and make your lender unwilling to fund on completion day
Real estate deals are living, breathing things. They change as they are being negotiated and carried out.
If you have a subject for an appraisal or an inspection, and the results of the appraisal or inspection comes back with a surprise like “the roof is failing and needs $20,000 to repair it”… well that can significantly impact your lender’s willingness to go through with your mortgage. They might now consider that there is not enough equity in the property to make the mortgage worth their while, or that the increased payments will be unsustainable for you to make over time.
As notaries and conveyancing lawyers, we are obliged to tell the lender anything that could materially affect their decision to proceed with the transaction.
If we tell the bank you need a new roof, they might very well walk away from the deal, leaving you high and dry.
A failure to port
Another option some lenders give clients is porting a mortgage.
Porting a mortgage happens when you have a mortgage on one property and the lender lets you use that same product on a new property.
The problem is that lenders don’t really explain to clients that when you sell your old property, you need to discharge that mortgage from your old property, and then register a completely new mortgage on your new property.
Lenders have portability, but the Land Title Office does not.
What “porting” actually means:
- Old property: Your existing mortgage/LOC is discharged on sale
- New property: The lender must re-approve you, the property, and the amount, then register a new mortgage on the new property
- Products change: the lender may no longer offer the product you first qualified for
- Freezing lines of credit: Home equity lines are commonly frozen or closed when we request a payout statement
Other reasons funding can fall apart late, causing your lender to refuse to fund on closing day
- Re-underwriting at the finish line: income, debts, or credit score changed
- Property issues: you are buying a different property than the one you are selling – manufactured home instead of freehold, for example
- Valuation shortfall: appraisal comes in low
- Policy/product changes: the lender no longer offers the original product
- Document/condition gaps: insurance binder unavailable, ID missing, strata forms, proof of down payment, new money-laundering and fraud compliance issues
- Debt-service math shifts: other financial aspects of your assets have changed in nature or in value, making this new mortgage no longer financially viable
The “we may not advance” clause
More than one client has found to their shock that their lender has refused to fund their mortgage.
Mortgages in BC include a document called Prescribed Standard Mortgage Terms.
This document sets out the fine print of your agreements with the lender. For example, it says you must:
- make payments as set out in your paperwork
- live in the property
- not rent or lease the property out without the lender’s permission
- keep the property in good shape
- pay property taxes, insurance, strata fees and other amounts
- keep hazardous substances off the property
- not register any other financing against the property
These are all reasonable requests. The worst part, though, is the “Election not to Advance” section.
The Election not to Advance section very clearly says the lender can decline to advance funds at any time, for any reason.
Even if you met all of the lender’s conditions.
Even if the mortgage has been signed and registered.
Red flags to watch 10–14 days before completion
- your BC Notary or conveyancing lawyer hasn’t received a mortgage instructions package from your lender’s head office
- your LOC on your phone app or statement is showing as restricted or unavailable
- your lender asks for new documents or comes up with new funding conditions
If your lender refuses to fund
- Talk to us. We’ll call you to let you know there is an issue. We’ll review options with your realtor and the other party’s notary or conveyancing lawyer.
- Explore short-term solutions:
- is other financing available?
- can you borrow from family?
- can we extend the completion and possession dates?
- buy a lottery ticket
- Re-qualify quickly with another lender; if you are working with a broker, call them immediately to discuss options
Heads-up for sellers: If a buyer cannot complete, there are contractual remedies. But these are legal issues that depend on your contract. Talk to your notary or conveyancing lawyer before making promises about keys or access.
How to reduce risk up front
- complete all of the lender’s conditions for funding with your broker as soon as possible
- confirm that your lender has sent instructions to your BC Notary as soon as possible so we can work through the requirements they have of us (which are separate and apart from the broker’s conditions for funding)
- don’t rely on an existing line of creditfor completion funds unless the lender confirms in writing it will remain available after payout
- avoid major changes in your financial situation – no new debt, retiring, going to a new job, or making major purchases before closing
- if you are changing property types – for example getting a First Nations property instead of a freehold title – make sure your lender knows that and will be okay with it
- put together a plan B if your lender fails – family backup funds, broker ready with an alternate lender, ability to request a short extension
Final note
This is general information for BC real estate transactions. It’s important to double and triple check as you go through this process that you have met all of your lender’s qualification criteria. You must fully understand what your lender has agreed to do with any lines of credit.
Need help? Contact us. The Notary Group can review your dates, lender conditions, and options so you’re not caught short on completion.
FAQs – When a lender refuses to fund in BC
Can a lender refuse to fund on my real estate's closing day in BC?
Yes. Standard mortgage/charge terms usually allow non-advancement. Nothing is guaranteed until funds actually land with your notary/lawyer.
Is mortgage “portability” guaranteed?
No. “Porting” still requires a new approval and a new registration on the new property. If you or the property don’t fit current product rules, porting can fail.
Will my HELOC, or line of credit, stay open for my new purchase?
Often no. Many lenders freeze or close the LOC when the old charge is discharged. Assume it’s unavailable unless confirmed in writing.
If you are wanting to use money from a line of credit to fund your new mortgage, make sure you have a conversation with a mortgage broker about whether this will work, and if you need a back-up plan in place.
Can my BC notary or conveyancing lawyer force the lender to fund?
No. We can coordinate timelines, requirements, and options—but we can’t compel a lender to advance.
What if I’m days from completion and short on funds?
Call us immediately. Options may include a short extension, private financing, a family advance, or qualification with a broker for a new lender. The right move depends on your contract, dates, and what other options your broker can find for you last-minute.
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