The law lists six ways a mortgage is extinguished, and selling the land is not one of them
Section 744 of the Civil and Commercial Code states plainly that a mortgage ends when the secured debt is extinguished by something other than prescription, when it is released in writing, when the mortgagor is discharged, when it is withdrawn, when the property is sold at auction by court order, and when the property is forfeited.
Nowhere does it say when the land is sold to somebody else.
Which means a mortgage does not disappear because the owner changes. It attaches to the land, not to the person.
So a buyer who takes mortgaged land on the strength of I will settle with the bank afterwards becomes the owner of land still carrying somebody else's debt, and the bank can enforce against that plot even though the buyer never borrowed anything.
The good news is that mortgaged land is bought every day. It just has to be done in the right order.
One principle to remember: the release comes before or at the same moment as the transfer
Never afterwards.
Because once the transfer is registered, all leverage is gone. The seller has the money, your name is on the title, and the burden is on the land.
In practice there is only one safe method: get every party to the Land Office on the same day and do these two things back to back at the same desk.
- The mortgagee is paid and the release of mortgage is registered.
- The transfer of ownership to the buyer is registered immediately afterwards.
No day in between, no night in between, and nobody going home first.
When the buyer needs a loan too
The most common case has a bank on each side, which puts four parties at that desk.
The sequence used in practice is that the buyer's bank prepares two cashier's cheques: one payable to the existing mortgagee for exactly the payoff figure, and one payable to the seller for the balance.
Everything happens on the same day: release the old mortgage, transfer, then register the new mortgage to the buyer's bank.
What has to be arranged in advance is a payoff statement from the existing mortgagee, dated for the actual appointment day.
The payoff figure changes daily because interest keeps running, so if the appointment moves, get a new statement rather than reusing the old one.
What to check before paying a deposit
- Pull the registration record to see who holds the mortgage, for how much, and whether anything else is registered over it, such as a second mortgage or a caveat.
- Get an approximate outstanding balance and compare it with the agreed price. If the debt exceeds the sale price, the seller has to find the difference themselves, and that is something to know on day one rather than at the desk.
- Put it in the contract that the seller must deliver the land free of mortgage on the transfer date, and that failing this the buyer may terminate and recover the deposit with damages.
- Do not hand the seller a large sum to clear the debt in advance, because if they use it for something else you are left with nothing.
That last one catches the most people, because the argument sounds reasonable: they have to clear the debt before the deed can be released.
They do not. The bank handles the release at the desk on transfer day, and that is exactly why the joint appointment exists.
When to walk away
If the seller pushes to transfer first and release the mortgage later, you have your answer.
The same applies if the seller will not let you contact the mortgagee at all, because the real outstanding balance is something a buyer is entitled to know before deciding.
And if several mortgages are registered in sequence, or a caveat appears in the record, take legal advice first. Not because it cannot be bought, but because the number of parties who must appear on the same day goes up, and one missing party wastes the whole appointment.
Caveats and what they do are covered in a land caveat and the thirty days.
What belongs in the sale contract is in what to read in a sale and purchase contract.
Frequently asked questions
Can I buy land that has a mortgage on it?
Yes, and it happens every day, provided the release of mortgage is registered before or at the same time as the transfer, on the same day, rather than afterwards.
Does the mortgage disappear once the land is transferred?
No. Section 744 lists six ways a mortgage is extinguished, and a sale is not among them. It attaches to the land, not to the person.
What happens if the seller does not clear the debt after transfer?
The bank can enforce against that plot even though you never borrowed anything, and you are left with a claim against the seller, which is a different thing from keeping the land.
Should I give the seller money to clear the debt first?
No. Pay at the desk on transfer day, with a cashier's cheque made out directly to the mortgagee for the payoff figure.
Can I reuse the payoff figure if the transfer date moves?
No. Interest runs daily, so ask for a fresh payoff statement dated for the actual appointment.
What should I check before paying a deposit?
Pull the registration record to see who holds the mortgage and what else is registered, then compare the outstanding balance with the agreed price, because a debt larger than the price means the seller must fund the difference.
In short
- Section 744 lists six ways a mortgage ends, and a sale is not one of them.
- The mortgage attaches to the land, so the buyer inherits it unless it is released.
- The release must happen before or with the transfer, same day, same desk.
- Pay the mortgagee directly by cashier's cheque. Never hand the seller the money to do it.
- Get a payoff statement dated for the actual appointment, and a fresh one whenever it moves.
- A seller pushing to transfer first and release later is a reason to walk away.