Lender can rely on title register when mortgage not fraudulent
By AdvocateDaily.com Staff
A recent Divisional Court decision that found a mortgage was not a fraudulent instrument allowed the lender to rely upon the state of the title register which showed no prior mortgages — resulting in the court overturning a prior decision over which the original/previous lender had the ‘first mortgage’ on a property, Toronto real estate lawyer Lisa Laredo tells Law Times.
As Law Times reports, the Divisional Court in the case recently overturned an application judge’s decision that a first lender — Computershare Trust Company of Canada — should be given priority of funds recovered from the sale of a house.
The owners secured a loan of more than $280,000 from Computershare, and registered a mortgage on their home in Brampton, Ont. in 2008. They borrowed $252,800 from CIBC Mortgages Inc. in 2011 and $32,000 from Secure Capital MIC Inc. in 2012. They defaulted on all three mortgages in early 2013 and filed for bankruptcy, Law Times reports.
The three mortgage providers brought an application to the Ontario Superior Court to resolve the issue of who should have priority over the funds retrieved when the house was sold.
The application judge, Justice John Murray, found that Computershare should be given priority in spite of the fact the first mortgage had been discharged as it had allegedly been filed fraudulently.
“Murray found that while CIBC and Secure Capital were innocent parties, their mortgages were fraudulent and that Computershare’s mortgage was not invalidated by the fraudulent discharge,” says the article.
However, the Divisional Court found that the CIBC mortgage was not a "fraudulent instrument," but was simply a “conveyance of a charge on the property."
“The court maintained that the Land Titles Act provides that nothing invalidates the effect of a registered instrument that is not a fraudulent instrument, including those that are registered after such a fraudulent instrument,” says Law Times.
The court noted that as the couple was the true owners of the property, their ownership was properly registered, and the CIBC and Secure Capital mortgages could not be fraudulent, says the article.
As Laredo, principal of Laredo Law, says in the article, the mortgage document did not contain any recital that it was a first mortgage and merely stated the mortgagor is the registered owner.
“Because the mortgage was not a fraudulent instrument, the mortgagee could rely upon the state of the title register, which showed no prior mortgages,” says Laredo, who was not involved in the case and comments generally.
As such, says the article, the court ruled the CIBC was the first mortgage and therefore, had priority over Computershare.