TITLE FRAUD Should You Be Concerned?

Transcription

1 Spring 2009 TITLE FRAUD Should You Be Concerned? Topics: Title Fraud - Should You Be Concerned? front page King Lear Should Have Had A Lawyer! (Transfers Between Parent and Child) page 3 Professional Notes and Firm News page 6 Many of you have heard or read in the paper of the recent wave of real estate title fraud in the Province of Ontario. People have either lost their homes or have been left with large mortgages to pay even though they did not receive any of the mortgage money. In this article I will attempt to cover the following three issues: 1. describe the problem and some concerns; 2. review the recent changes in the law and whether this protects you; and 3. set out what you can and should do to protect yourself. The Problem And Some Concerns You may have heard the problem of title fraud has been caused by the government s new electronic registration system called Teraview. This is not the case. The problem was actually brought to a head by the significant increase in the use of computers in business generally and the willingness of lenders to waive on-site inspections of real estate before making loans. You no longer have to attend in person before a bank manager who is well acquainted with your banking history, but can apply anonymously through the internet for a mortgage loan, and the bank will no longer require an on-site physical inspection or appraisal of the property but will be satisfied with a simple external drive-by review of the property instead. The problem was accentuated by the Ontario courts more recent willingness to interpret the law in this area to hold that, even if the title to a home was stolen by the registration of a fraudulent deed, any mortgage which the fraudulent person gave to a

2 legitimate bank or other lender remained valid and when the property was ultimately returned to the true owner, this true owner was still required to repay the new mortgage even though they had not received any of the mortgage money when advanced. In the past these mortgages had been held to be invalid and everyone thought that the law would ultimately hold these mortgages to be invalid so that the valid owner of the property would be put back in the same position as he or she was prior to the title fraud. However, the Ontario courts recently held that the law was the opposite of what most people had always thought was the case and that these mortgages remain valid even if given by a party who had fraudulently acquired title to the property. Recent Changes In The Law As the result of a public outcry and political pressure in the legislature, the Province in December, 2006 amended the Land Titles Act and various other related statutes so the courts new interpretation of the law was reversed. Under these new amendments to the law, any fraudulent document AND any person acquiring an interest in land from a fraudulent person is invalid and will not affect title to real estate. The law has essentially been returned to what it was assumed to be for many years and thus not only would the true owner ultimately get his or her property back, but any new mortgage created by the fraudster would be invalid and not affect title. This will be the case except in the very rare situation where there has been a further or secondary transfer of the property (legally known as deferred indefeasibility) from an innocent party who acquired their title from a fraudulent party but without the first innocent party s knowledge of the fraud. This situation rarely occurs and usually requires the second innocent party who acquires title to have actual access to the real estate and in order to do so most valid property owners would have become aware of the potential for the fraud and had an opportunity to take evasive action. Accordingly, this is not a major concern at this time. In addition to the change in the law, the Province set up an anti-fraud task force which implemented several other significant changes which have reduced the number of title frauds in the Province of Ontario. These new procedures require that all real estate agents obtain valid identification from purchasers of property at the time they are submitting or accepting Agreements of Purchase and Sale and that all mortgage brokers and lenders obtain valid identification from borrowers at the time that they make Mortgage Applications. These changes have resulted in identification to be obtained much earlier in the real estate process and for there to be much more time and people involved in potentially identifying fraudsters so that the chance of a fraud being successfully completed has been reduced significantly. In fact, statistics maintained by Canada Mortgage and Housing Corporation show that frauds in the Province of Ontario have been significantly reduced since these new procedures have been implemented and since the new laws have been passed. However, frauds in the Province of Quebec and other Provinces where such procedures have not yet been adopted have been rising significantly. What You Can And Should Do To Protect Yourself The result is that the actions taken by the Province and the anti-fraud task force has essentially remedied the situation to the point where you do not have to worry. The title to your home is safe and in almost every case even if there is the 2 - Minden Gross llp - spring 2009

3 registration of a fraudulent deed transferring the title into the name of another person, you will get title back and any mortgages registered by the fraudster will ultimately be discharged where you did not get any of the mortgage monies. However, this may take some time and quite a bit of money, not to mention the stress and aggravation. The best thing you can do (other than retain a good lawyer) is to have title insurance. The title insurance will not be necessary to pay off any of the fraudulent claims on your title as the law has been changed to remove these claims but it will provide a deep pocket source of money and expertise to deal with the problem quickly and without draining your other resources. In most cases the title insurer can arrange legal representation for you at their expense and sufficient payments to the lenders who have made loans to the fraudster so that you will not have the stress or uncertainty as to the ultimate outcome. Of course, this only applies to owner-occupied houses, as title insurance for commercial properties does not cover frauds occurring after the date on which the policy is issued (in most cases the day the property is purchased). At least in the Province of Ontario, you can truly say Don t worry, be happy. Steven I. Pearlstein Certified as a Specialist in Real Estate Law Tel: spearlstein@mindengross.com KING LEAR SHOULD HAVE HAD A LAWYER! (TRANSFERS BETWEEN PARENT AND CHILD) Parents transfer property to one or more of their children for different reasons. For love; for tax planning; to avoid probate fees; by reason of undue influence; and sometimes to bullet proof assets. Too often these transfers from parent to child lead to litigation. Sometimes the litigation takes place between the parent and child. Sometimes the litigation takes place among the siblings of the transferee. In most cases the solicitor who prepared the documentation relating to the transfer of the property is called as a witness to describe the circumstances of the transaction. One of the actions by a mother against her son to whom she had transferred her real estate interest led the court to say: I would note at the outset that the court has seldom experienced the hostile animosity, the hatred that appears to exist between the parties, mother and son. In another case, the Trial Judge described the action between a parent and her child as the themes emerging from the evidence in this case reveal a cautionary tale of parental hopes dashed, sibling rivalry triumph and love for a place embittered. Minden Gross llp - spring

4 Unless a lawyer is absolutely certain that the parent has been fully informed, is acting freely and independently, and is aware of options, it is my opinion a solicitor should be wary of acting for both the parent transferor and the child transferee. If the solicitor does decide to act for both, he should proceed with caution and ensure that the risks and consequences of the transfer are fully explained. SOME ACTUAL CASES Stanciu v. Stanciu A mother transferred her property to Zoria, one of her sons. Zoria was agreeable to his mother living at the property for her lifetime rent free. When one of the mother s other sons Joseph, at the invitation of his mother, moved into the property with his wife and mother-in-law, the son Zoria, now the registered owner, not only brought eviction proceedings against his brother Joseph and his wife, but also against his mother who had transferred the house to him. Zoria would allow Joseph and his family to live in the house but only so long as Joseph paid rent. The mother wanted the house back. She sued her son Zoria. Zoria defended the action testifying that the transfer of the property was a gift to him. The Court held in favour of son and dismissed the action of the mother against the son. The Court said that Joseph had no right to occupy the property rent-free on the back of his mother s entitlement to a life interest and was obligated to pay fair market rent while he and his family lived there. It was not for the mother to permit Joseph and his family to live in any part of the house rent free. A lesson to be learned, therefore, is that if a parent intends to transfer his or her property to a child, the parent and the parent s solicitor should ensure that any life tenancy and terms are set out in the transfer and in a separate agreement. Who pays taxes, maintenance, repairs, structural damage? If there is a life interest, can the parent invite or permit other children or others to occupy the property on terms the parent is agreeable? These are only some of the issues that should be considered and discussed by the parent, the lawyer and child if a transfer of property is contemplated. Danicki v. Danicki The Judge in his introduction to the case said: The 102 year old mother applied to have a deed set aside and ownership and title in certain property returned to her. The defendant was the plaintiff s 66 year old son. When the mother was 100 years old, she transferred her home to her 65 year old son who, with his family, lived in the upstairs area, while the mother lived downstairs. There was a life interest reserved in the mother s favour. A lawyer who gave the mother advice regarding this transaction was satisfied that the mother understood the implications of the transfer. Two years later the mother s daughter found out about the transfer of the property to her brother. She, not surprisingly, told her mother that she did not think it was fair that her brother should have the sole ownership of the house. The mother then asked her son to transfer the property back to her so that she could transfer the property to both her children. She then brought an action to set aside the transfer and have the ownership of the property returned to her. Mrs. Danicki now seeks in this action to have that deed set aside, and the ownership and title to the property in respect of the remainder Minden Gross llp - spring

5 interest returned to her. Mrs. Danicki says that she wishes this to be done because she wants to treat her children equally upon her death in terms of her assets. The property would be the major asset in her estate. It has a present value of about $200,000. Her son refuses to accede to this request. It is clear from Mrs. Danicki s own evidence at the trial that some time after making the transfer she had second thoughts and felt she had made a mistake. Mrs. Danicki then decided that she wants to have her property divided evenly three ways so that her three children (and their families) have been treated equally. This is very important to her and is, of course, the reason for her lawsuit. Although the mother alleged in her claim that she did not know she was signing a deed, (she said she thought she was signing a Will), and alleged fraud and asserted that her son exerted undue influence over her when she signed the deed, the Judge accepted the evidence of the lawyer that the mother understood what she was doing when she transferred the property to her son. In his judgment in favour of the son, the Judge said that the mother was independent, intelligent, understood and intended to transfer the property to her son. She knew what she was doing. A gift was a gift. She only later changed her mind. After coming to the decision that the mother was of sound mind, transferred the property of her own free will and wanted to make a gift to her son at the time, the Trial Judge concluded: Mr. Danicki has not transgressed any secular law. One can say only, at most, that Mr. Danicki has chosen to ignore the fifth commandment, Honour thy father and thy mother, which unfortunately is not a law within the jurisdiction of this court. A parent who wants to transfer a gift or a property to one of his or her children must communicate and work together with the lawyer to discuss the circumstances and reasons for the transfer. The lawyer should know and appreciate what the client wants to do. The lawyer must explain the documents and the risks of what it means to relinquish or transfer property or property rights. The lawyer should satisfy himself or herself as to the client s mental and even physical state of health, the relationship with the proposed transferee, and the parent s relationship with the other children, and the relationship of the children to one another. The lawyer, in other words, must have knowledge of the circumstances and give advice acting in the interest of the transferor. The solicitor and the parent, in my opinion, should discuss or consider alternatives, such as joint tenancy, life interest, or an agreement setting out the rights and obligations of the transferor and what payments or obligations, if any, are to be made or assumed by either the transferee or the transferor. What everybody wants to avoid is a King Lear Tragedy. Reuben M. Rosenblatt, Q.C., LSM Tel: rrosenblatt@mindengross.com 2009 Minden Gross llp - This newsletter is intended to provide general information only and not legal advice. This information should not be acted upon without prior consultation with legal advisors. If you would like to be removed from our mailing list, please contact Printed on recycled paper. 5 - Minden Gross llp - spring 2009

6 barristers & solicitors 145 king street west, suite 2200 toronto, on, canada m5h 4g2 tel fax Professional Notes Samantha Prasad was featured in the cover story of the 2009 spring issue of Precedent Magazine Firm Believers - Women in Private Practice. Samantha was a presenter at the OBA Joint Tax & Trust Sections seminar on Tax for Succession Planning, Trusts and Estates Practitioners on March 3. Samantha also was the feature presenter at the Toronto chapter of the CGA Association of Canada on March 26 at their semi-annual dinner on Tax and Business Succession Planning. Michael S. Horowitz was co-chair of the ICSC 2009 Canadian Shopping Centre Law Conference held in Toronto on March 5-6. Ian J. Cantor lead a roundtable discussion on lease remedies and Stephen Messinger was a presenter at the session entitled Nine Nifty Topics for Stephen Messinger was a lecturer at the ICSC School of Professional Development on March 27, and participated as an advisory board member at the annual Georgetown Advanced Commercial Leasing Institute held April 1-3. Stephen Posen spoke on the topic Priority Issues and Practical Considerations for Non-Disturbance Agreements and Notices of Lease at the Law Society of Upper Canada program Six-Minute Commercial Leasing Lawyer on February 11. He also lectured at Springfest on the topic of Landlord Remedies for Tenant Defaults on April 1. Howard S. Black presented a paper entitled The Unworthy Litigant at Mediation - Payment of Ransom Money? at the Law Society of Upper Canada program entitled The Six-Minute Estates Lawyer 2009 on April 6. Howard has also authored a book Wills and Estates: Cases, Text, and Materials published by Emond Montgomery Publications Limited. Steven Pearlstein was recently quoted as a Specialist in Real Estate Law in articles that appeared in the January 2009 issue of Canadian Lawyer magazine and in the January 19 issue of the Law Times newspaper. On April 23, Steven presented a paper on Family Mortgages at the 6th Annual Real Estate Law Summit for the Law Society of Upper Canada. On June 9, Steven will be chairing a CLE program entitled Restructuring Distressed Real Estate for the Ontario Bar Association. Hartley R. Nathan, Q.C., will be presenting a paper called Strategies for Contentious Board and Membership Meetings at the Canadian Bar Association s 2009 National Charity Law Symposium on May 7. Hartley is also editing the 8th Edition of Nathan s Company Meetings Including Rules of Order. Firm News We are pleased to announce the creation of our Vehicle Dealer Practice Group, VehicuLAW. Led by the Chair of the Firm s Litigation Group, A. Irvin Schein, the Vehicle Dealer Practice Group consists of a cross-disciplinary group of lawyers in the firm with particular experience and specialized knowledge developed over many years of service to our vehicle dealer clients. Please contact Irvin Schein at or by ischein@ vehiculaw.com. 6 - Minden Gross llp - spring 2009