What a caveat does on title
A caveat blocks dealings on the title, and does very little else. It is a notice lodged with the land titles office recording that somebody claims an interest in the property. Once it is on, a transfer or a new mortgage cannot be registered without the caveator's consent or a court order removing it.
What a caveat is not is a registered mortgage. It grants no direct power of sale, so a caveat holder cannot appoint an agent and sell the property the way a mortgagee can. It also ranks behind interests already registered on the title. The practical position is closer to a roadblock than to a security interest: it stops the owner dealing with the property, which creates pressure to repay, but it does not give the lender a route to recover on its own.
Lodging one is quick, which is the whole attraction. That speed is also why caveat lending is priced above mortgage lending, because the lender is accepting a materially weaker recovery position in exchange for it. Caveat facilities are correspondingly short, typically three to six months.
The situations a caveat is usually reached for are narrow and share a shape: a small amount of money, needed inside a timeframe a registered mortgage cannot be settled in. A stamp duty shortfall discovered close to settlement, working capital ahead of a sale already under contract, or an urgent business obligation with a date on it. In each case the question worth asking first is whether the timing constraint is real or assumed, because on a clean file with a cooperative first mortgagee it often is not.
How a caveat differs from a registered mortgage
A caveat differs from a registered mortgage in what it lets the lender do if the loan is not repaid. The comparison below is the short form. Where a file is a genuine choice between the two, a registered second mortgage is usually the stronger structure for both sides.
| Attribute | Caveat | Registered mortgage |
|---|---|---|
| What it is | A notice on title recording a claimed interest | A security interest registered against the title |
| Power of sale | None directly | Yes, exercisable as mortgagee |
| Priority | Ranks behind interests already registered | Ranks by registration, as a first or second mortgage |
| Effect on a sale | Blocks the dealing until it is withdrawn or removed | Discharged at settlement out of the proceeds |
Where to read more
The legal mechanics, the recovery position and the consent question are set out at length in this caveat loan compared with a second mortgage, which cites the governing legislation. It covers what a caveat holder can and cannot do on a default, when the first mortgagee's consent is and is not required, and how a caveat is dealt with when the property sells.