The client
A homeowner in Strathmore carried a first mortgage and a private second, and wanted both consolidated into a single new mortgage with an institutional lender.
First mortgage
$186,000, 5.05%
Private second
$64,000, 8.75% interest-only
Household income
$7,900/month
Discovery
Detached shop, built decades earlier, over the side-yard line
The problem
The private lender had never asked for a current Real Property Report when the second was arranged. The new institutional lender did, as a standard condition -- and the survey it triggered showed a detached shop, built long before the current owner bought the property, sitting a small distance over the side-yard boundary.
Why removal was never really on the table
- ▸The shop was a lasting improvement, built decades earlier in the genuine belief it sat on the owner's own land -- exactly the situation Alberta's Law of Property Act, section 69, was written to address
- ▸Section 69 lets a court, weighing all the circumstances, order removal, grant an easement, order the encroaching land sold to the improver, or order compensation to the neighbour -- removal is one option among several, not the default
- ▸Neither side wanted litigation over a few feet of side yard; a private agreement modelled on what a court would likely order was faster and cheaper for everyone
The lender's title condition did not actually require the shop to move. It required the encroachment to be resolved -- and an encroachment resolved by agreement clears a title condition exactly as well as one resolved by a judge.
The numbers
Once the encroachment was settled, the refinance itself was an ordinary consolidation with one added line item.
| Consolidating with the easement compensation included | Amount |
|---|---|
| First mortgage balance | $186,000 |
| Private second balance | +$64,000 |
| Easement compensation to the neighbour | +$4,500 |
| New consolidated balance | $254,500 |
| Total debt service | Figure |
|---|---|
| Payment at the qualifying rate (7.75%), 25 years | $1,902/mo |
| Property tax | $295/mo |
| Heat | $120/mo |
| Car loan | $230/mo |
| Total debt service | 32.2% |
The $4,500 compensation figure was negotiated between the two homeowners, not set by any published formula -- section 69 gives a court discretion, and a private settlement modelled on that discretion is inherently deal-specific. 32.2% left ample room on $7,900/month income.
The solution
A mortgage associate regulated by the Real Estate Council of Alberta (RECA) treated the encroachment as a resolvable title condition, not a reason to abandon the refinance.
First, confirmed with real estate counsel that the shop qualified as a lasting improvement under section 69, built in the genuine belief it sat on the owner's own land.
Second, had counsel approach the neighbour about a registered easement and compensation, rather than a demand to remove a structure that had stood for decades.
Third, registered the easement on both titles and provided the new lender's underwriter with the agreement, satisfying the title condition without a court application.
The outcome
The consolidated refinance funded at 5.75%, including the easement compensation, for a new balance of $254,500 at 32.2% total debt service.
Because this is an uninsured consolidation refinance, CMHC's ratio maximums do not apply directly; the 32.2% figure is informational.
What to take from this file
- 01Alberta's Law of Property Act, section 69, gives a court several ways to resolve an innocent encroachment -- removal is only one of them. An easement or compensation can resolve it just as completely.
- 02A private lender's failure to require a survey does not mean an encroachment doesn't exist. A new lender's own current Real Property Report can surface a decades-old problem for the first time.
- 03A title condition asking for the encroachment 'resolved' does not necessarily mean the structure has to move. An agreement modelled on section 69 clears the condition just as well.
- 04Compensation figures under section 69 are negotiated, not formulaic. State them as this file's own deal, not as a rule other files can rely on.
Sources
Every regulatory figure in this file traces to one of these primary sources. Client details and anything that varies by lender are illustrative, as flagged below.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸Provincial/territorial mortgage-broker legislation fetched directly (bclaws.gov.bc.ca, legisquebec.gouv.qc.ca, fcaa.gov.sk.ca, web2.gov.mb.ca, nslegislature.ca, assembly.nl.ca) plus FCNB's own site for NB and CanLII's index for PE — see notes for per-province method — provincial mortgage regulators and licence titles.
Illustrative in this file — lender-specific, not rules:
- ▸5.05% / 8.75% / 5.75% rates — rates move daily; none is a quote.
- ▸$4,500 compensation figure — negotiated between these two owners; section 69 gives a court discretion, not a formula.
Authority & provenance
How this case file was built
We publish the origin, the verification method and the reviewer for every case file, so you can judge how far to trust it before you rely on it with a client.
Where it comes from
Derived from files handled by Treadstone’s fulfillment desk and from scenarios contributed by partner brokerages. Names, employers, exact amounts and dates are changed so no client or file is identifiable.
Provenance: Composite — a pattern seen repeatedly on fulfilled files, not a single transaction.
What is verified
Every regulatory figure traces to a primary source listed above and was checked against it on the date shown. The arithmetic is recomputed by machine on every rebuild.
Anything that varies by lender is labelled illustrative rather than stated as a rule.
Who reviewed it
Reviewed for Canadian regulatory accuracy before publication, and re-checked whenever a cited rule changes.
Reviewed by: Nicholas Parson, Treadstone Associates — reviews every case file before publication.
This case file is professional reference material for licensed mortgage professionals. It is not advice to a borrower, and it is not a lender commitment. Insurer rules, qualifying rates and provincial taxes change — confirm the current position with the insurer, regulator or lender before you rely on any figure here in a live file.