September 30, 2006
No correct answer or easy solution to title fraud dilemma
The governments of Ontario and British Columbia have taken directly
opposite positions on how to protect the public from title fraudsters.
Earlier this month, Ontario Government Services Minister Gerry Phillips
announced that he would introduce legislation to restore ownership of a
home to anyone who lost it as a result of registration of a falsified
mortgage, a fraudulent sale, or a counterfeit power of attorney.
Under the proposed legislation, an innocent homeowner's title will be
restored to him or her and the fraudulent document will be cancelled —
even if the new owner and new lender are also innocent and had no
knowledge of the fraud.
In sharp contrast to Ontario's position, last November British Columbia
passed a law that gives ownership of a home in these circumstances to
the innocent purchaser who has bought the house in good faith, even
though the transaction involves a forged transfer.
Prior to the amendment to the B.C. Land Title Act, if Allan forged a
transfer of Bill's title and sold the property to Charlie, Bill would
have his ownership restored even if Charlie was a completely innocent
purchaser with no knowledge of the fraud.
Charlie would be left with no remedy except to sue Allan and make a claim
against the provincial assurance fund.
After the amendment came into effect in November, Charlie gets to keep
the title of the home under the forged deed, and Bill — the original
owner — will be compensated by the government's assurance fund for the
loss of his ownership.
If Ontario introduced legislation similar to that in B.C., innocent
homeowners like Susan Lawrence and Elizabeth Shepherd — both of whom had
the title to their houses stolen — would only lose their houses if the
purchaser was innocent. But in both those cases, since the purchaser had
never taken possession and could not claim innocence, the only injured
party would be the lenders.
The B.C. legislation only applies to ownership, so the lenders in either
province would still be left with a claim against the assurance fund or
their title insurance.
In other words, in British Columbia, an innocent purchaser who buys a
house from a fraudster in good faith and does not participate in the
fraud, gets to keep the title regardless of the fact that a prior owner
has been defrauded in the process.
The new legislation is retroactive, and applies to title frauds committed
before proclamation of the law last November.
My view of the B.C. legislation is that the only way a purchaser could
claim innocence is if he or she actually took possession of the
property, either personally or through his or her tenants. Without
taking possession, there might be a presumption that the purchaser was
aware of the fraud.
The Law Society of British Columbia was represented on a task force that
led to the new legislation. According to an announcement on its website,
the Law Society "endorsed the reforms as a means of better protecting
the public and enhancing public confidence in B.C.'s respected land
title system."
At the time the new legislation was proclaimed, Ralston Alexander,
president of the Law Society of B.C., said, "The ... changes will work
to ensure legal fairness and protection to both owners and purchasers of
property in British Columbia. The Law Society supports these
amendments..."
As a result of the new legislation, British Columbia now has a land
titles system that strictly adheres to what lawyers call the "mirror
principle." Whatever appears on the title index — whether fraudulent or
not — is an exact mirror of who owns the property.
Under Ontario's proposed legislation, the title index will not be a true
indicator of the state of the title, and will be conditional on the lack
of fraud in the chain of ownership. Any fraudulent dealing with the
ownership will result in cancellation of the current deed and a rollback
to the state of the title as it stood before the fraud or forgery took
place.
Don Bergeron is the manager of title insurance for St. Paul Guarantee
Insurance Company at its Toronto office. In an email last week, he told
me, "B.C. believes in the true mirror principle that Land Titles is
supposed to represent."
"In the end," he added, "unless the Ontario provincial government is
prepared to set up and capitalize an efficient and effective payout fund
to settle land titles claims quickly, then title insurance is
effectively the only true fraud protection device available to the
public today."
As I wrote in this column two weeks ago, the proposed Ontario legislation
would not protect an innocent buyer — one who unknowingly buys a house
from a fraudster, even if he or she moves into the property.
I've had a number of emails in recent weeks complaining about my concern
for the innocent buyer. "When I buy a stolen car," one reader wrote,
"and the police come knocking at my door, I will automatically lose the
car and I, and/or the bank that advanced my car loan, will be on the
hook."
Another reader wrote, "I know of no other situation where stolen property
legally ceases to be the property of the rightful owner."
The readers make good points, but the difference here is that the
government maintains a guaranteed title registry for real estate, but
not for cars or coin collections.
When a house title is stolen the government has a fund to compensate the
injured party. There is no fund for other stolen property, and no
government ownership guarantee either.
When it comes to stolen real estate titles, it's ultimately a policy
decision for the Ontario government to make: Who will get hurt, the
innocent owner or the innocent purchaser?
B.C. has already moved in one direction, with the support of the
province's legal community. Ontario is heading in the exact opposite
direction.
Unfortunately, there is simply no correct answer or easy solution.
Whichever way Ontario moves will be right for some stakeholders, and
wrong for others.
Bob Aaron is a Toronto real estate lawyer. He can be reached by email
at bob@aaron.ca, phone 416-364-9366 or fax
416-364-3818. Visit the column archives at
http://www.aaron.ca.
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Law Society of British Columbia
Benchers' Bulletin
November - December 2005
http://www.lawsociety.bc.ca/publications_forms/bulletin/2005/05-12-10_realestate.html.
Assurance Fund now offers greater protection to BC home
buyers
Recent amendments to the Land Title Act provide greater
certainty to BC home buyers who, through no fault of their own, become entangled
in a fraudulent transfer. Although fraudulent land transactions are rare,
section 25.1 of the Land Title Act now creates immediate certainty of
land title for a person who has acquired a fee simple interest in a property in
good faith and for valuable consideration although, unknown to that person, the
transaction involved a forged transfer.
Lawyers will wish to be aware of this protection on behalf of
their clients.
Prior to the amendment, if A forged a transfer of B’s title to C
and C was a completely innocent purchaser with no knowledge of the fraud, B
would have been restored on title and C would be left with no remedy except
against A.
After the amendment, which seeks to uphold the principle of
immediate infeasibility of title and ensure public protection, C would keep the
title acquired and B would be compensated by the Assurance Fund.
As lawyers know, the Assurance Fund has long provided compensation
to individuals who are deprived of title to real property due to an error in the
operation of the Land Title Act or the administration of the land title
system under the Registrar’s direction. With the most recent round of
legislative amendments, this basic protection has been extended.
Previously it was necessary for a claimant to show that an
administrative error had been caused solely by an act of the Registrar, but now
the concept of contributory negligence is recognized. If a claimant contributes
to a loss caused by the Registrar, the liability is shared. The claimant
accordingly bears his or her portion of the loss, but can claim against the
Assurance Fund for the amount of the loss caused by the Registrar.
The Land Title Act changes came into effect as part of Bill
16, the Miscellaneous Statutes Amendment Act (No. 2), SBC 2005, c.35, on
November 24. On behalf of the Law Society, Su Forbes, QC, Director of the
Lawyers Insurance Fund and Ron Usher, Policy Staff Lawyer, Practice
Opportunities served on the task force behind these reforms. The Law Society has
endorsed the reforms as a means of better protecting the public and enhancing
public confidence in BC’s respected land title system.
For more information, contact the Land Title and Survey Authority
or visit online at www.ltsa.ca.
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