LAW 603 Chapter Notes - Chapter 16: Adverse Possession, Specific Performance, Mortgage Fraud
Chapter 16: Real Property: Sales and Mortgages
Registration Systems
A variety of interests may simultaneously exist in a single piece of land: a fee simple, a
life estate, a lease, an easement, a restrictive covenant, and so on
A matter of risk management is necessary to keep track of all of those interest
If you intend to purchase a particular property, you will want to know exactly what you
are getting for your money – you certainly wouldn’t want to pay for a fee simple and
then discover that you received a life estate
If you enjoy the benefit of a restrictive covenant, you would want to advertise that fact
to potential buyer if the servient treatment – otherwise the new owner might not be
bound by the covenant
In either event rely upon one of two registration systems, depending upon where in
Canada you live
Registration system: documents the existence of interest in land
Registry System
Registry system (or deeds registration system) is used in four Atlantic provinces, as well
as Manitoba and Ontario
Registry system: provides an opportunity to inspect and evaluate documents that may
affect real property
suppose you are interested in buying a cottage from me, buy you are not sure that I
actually own it – before you go ahead with the purchase, you will visit the registry office,
search through all the relevant records, and try to satisfy yourself that I am at the end if
a good chain of titles: series of transactions in which ownership was validly passed from
one person to the next
theoretically possible to trace that chain all the way back to the time when the
government held the land – fortunately as a result of legislation it is only necessary to go
back a much shorter period, for example, 40 years
The task of searching title is often difficult and hazardous therefore, it is usually best left
to someone with an expertise in the area, such as a lawyer specializing in real estate
The records may be unclear or misleading – mistakes may be made, and errors may be
overlooked for decades, only to be later discovered after many people have relied on
the appearance of the good title
Suppose I thought that I purchased the cottage 15 years ago from Alison – she in turn
believed that she has inherited it from her uncle – in fact, her uncle’s will actually left
the property to her brother – consequently, my chain of title is defective – even though
the records for the last 15 years indicate that the property is mine, it really belongs to
someone else (presumably Alison’s brother)
One of the defining features of the registry system is that the government’s role is
passive – It provides access to the documents, but it does not guarantee their accuracy –
therefore, even if you pay the price, you cannot get good title to the cottage from me
Because of this possibility, purchase title insurance: which provides a source of
compensation if our transaction does not include everything promised
find more resources at oneclass.com
find more resources at oneclass.com
From risk management perspective, the registry system leaves something to be desired -
A simple oversight during a title search may have disastrous consequences – you may
end up paying a lot of money without actually getting any land in exchange – this is one
reason to hire a lawyer to assist in the purchase of land
It is the lawyer’s job to ensure that the seller actually has a good chain of title – if the
lawyer makes a mistake, you will not be able to get the land, but you will be able to sue
the lawyer
If I did have a good chain of title, and if we did go through with the sale, you (and your
lawyer) should return to the registry office as soon as possible to register the transfer
documents – if not you might lose your cottage because after selling the land to you, I
might dishonestly sell it again to a third-party names Tre
General rule under registry system: Competing claims are resolved by the timing of
registration
If Tre did not notice of your earlier transaction, and if he gave valuable consideration for
his purchase, he gets the cottage if he registers before you – you can bring action
against me for damages, buy you cannot get the property from Tre
If you register your transfer first, you will provide Tre and the rest of the world with
notice of your rights – your claim to the land therefore cannot be defeated
Land Titles System
3 western-most provinces, the territories, and large parts of Manitoba and Ontario
operate under a land titles system (or Torrens system) to avoid problems associated
with the land registry system
Land Titles System: does more than simply provide an opportunity to inspect and
evaluate documents – it generates certificates of title that virtually guarantee the
validity of the interests that are listed
The key to a land titles system is the doctrine of indefeasibility: the interests that are
included in a certificate of title cannot be defeated. Based on three principles:
oMirror principle: states that all the interest listed in a certificate of title generally
are valid – the certificate reflects reality – I purchased land from Alison 15 years
ago, the land titles office examined the transfer documents and issued a new
certificate of title that names me as owner. You are entitled to rely upon this
certificate when buying the cottage from me. This is true even if my chain of title
was defective because Alison never really inherited the property from her uncle
oCurtain principle: states that the only valid interests in a property generally are
the ones that are listed in the certificate of title – therefore, unnecessary for you
to “lift the curtain” and look behind the certificate of title to determine whether
anyone else has rights to the property – even though Alison’s brother entitled to
the cottage, his rights were lost when the land titles office issued a certificate of
title naming me as the owner
oInsurance principles: states that a person who suffers a loss as a result of an
error in the system generally is entitled to compensation – land titles system
includes an assurance fund that helps people like Alison’s brother, although he
can’t get cottage back, he is entitled to a payment of money
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find more resources at oneclass.com
Mortgage Fund
oFraud has become a problem, especially in Ontario
oThe key feature of the land titles system is the principle of indefeasibility –
regardless of the underlying fact, registered interests are effective and
enforceable
oUnfortunately, the strength of the system is also its greatest weakness
oIf a person is improperly removed from title, the only source of relief may be a
claim against the assurance fund – to make matters worse, a successful action
against the fund often involves many years and great expense
oA victim of fraud may be required to exhaust all other potential sources of relief
before claiming against the assurance fund
oTypical case of mortgage fraud is surprisingly simple in operation – an innocent
person owns a piece of land, a rogue steals the landowner’s identity, forges the
necessary documents, and arranges to transfer the land to an accomplice – once
registered at the new owners of that land, the accomplice borrows money from
a bank – as security for the loan, the bank takes a mortgage over the land – the
criminals disappear with the money and the bank begins proceeding to enforce
its mortgage against the land – at that point the original owner of that land
finally discovers the fraud
oCourts are than left with a difficult situation – both the bank and the original
owner are entirely innocent – who shall bear the loss?
oEven if title is returned to the original owner, the bank’s mortgage remains a
validly registered interest, which it will want to enforce in order to be repaid on
the loan
oSome courts have held that the principle of indefeasibility requires a decision in
favour of the bank - the resulting hardship to the owner however has led the
judges and legislators to seek ways of protecting the land owners
oThe land titles legislations may be amended to ensure that the original owner
recovers title – procedures may be tightened to make it more difficult for
criminals to steal identities and forge document
oLand registry system may be entirely restricted to individuals directly involved in
transactions, rather than being entirely open to the public, as it is currently – if a
bank carelessly allows fraud to occur, it may be held responsible for the resulting
loss
oMost significantly, courts have begun to reconsider the principle of
indefeasibility
Unregistered Interest
Although the land titles system was designed to avoid uncertainty, a certificate of title is
not entirely indefeasible
Sometimes, an interest in land may be effective even if it is not registered – also true
under registry system
Consequently, when buying the cottage from me, you should conduct more than a
single search at the land titles or land registry office
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
A variety of interests may simultaneously exist in a single piece of land: a fee simple, a life estate, a lease, an easement, a restrictive covenant, and so on. A matter of risk management is necessary to keep track of all of those interest. If you enjoy the benefit of a restrictive covenant, you would want to advertise that fact to potential buyer if the servient treatment otherwise the new owner might not be bound by the covenant. In either event rely upon one of two registration systems, depending upon where in. Registration system: documents the existence of interest in land. Registry system (or deeds registration system) is used in four atlantic provinces, as well as manitoba and ontario. The task of searching title is often difficult and hazardous therefore, it is usually best left to someone with an expertise in the area, such as a lawyer specializing in real estate.
