AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:
Mistakes sometimes happen,
even in the land registry system. The
Land Titles Assurance Fund operates under the Land Titles Act and is
designed to provide compensation to individuals for financial losses arising
from real estate fraud or from errors and omissions of the land registration
system. To be eligible for compensation,
a claimant must ensure the time required to file the claim has not expired – applications
must be made within 6 years of suffering the loss – and the claim made must
meet the criteria for coverage. Examples of eligible claims include fraud,
errors or omissions by the land registration system, errors in recording land
that is brought under the Land Titles Act, and errors in recording a
registered document in the automated land registration system.
A decision of the
Ontario Superior Court of Justice dealt with a situation where the Land
Registry Office (“LRO”) had mistakenly deleted a valid and active first mortgage
from title to a residential property. The
LRO deleted 23 instruments from the property identification number (“PIN”)
assigned to the property, including the first mortgage. Importantly, the mortgage was deleted without
a discharge being formally registered or any reference to the registration
number of the discharged mortgage so that anyone looking at the PIN would not
see any reference to it. Several years later,
the homeowner sold the property to a new purchaser. The lawyers involved conducted title searches which
indicated that the first mortgage had been deleted from title and there were no
legal claims or restrictions against the property. There was nothing to suggest that the purchasers
had any prior knowledge that the first mortgage had been mistakenly deleted
from the PIN. As far as the purchasers
knew, the mortgagee to whom the homeowner vendor had given the first mortgage
had no ongoing interest in the property.
The property was sold to the
purchaser free any clear of any interest on the part of the original
mortgagee. When the original mortgagee
found out that its first mortgage had been deleted, it asked the LRO to correct
the problem. The LRO cooperated and reinstated
the mortgage by way of a Reinstatement Order registered on title. That mortgage went into default (not
surprisingly, since the new owners would not likely have known about it) and
the original mortgagee sought to recover the debt from the new owners of the
property. The new owners applied to the
Director of Titles for Ontario to have the Reinstatement Order set aside and to
remove the order and the mortgage from title to the property. The Director of
Titles determined that a member of LRO staff had unintentionally deleted the first
mortgage and concluded that the reinstated mortgage should be removed from
title.
The matter came to the Court
as an application by the first mortgagee to reverse the decision of the
Director of Titles and to have the first mortgage once again restored to title
to the property. The parties put forward
competing expert opinions about the conduct of the real estate lawyers involved
in the new owners’ purchase of the property.
The Applicant mortgagee argued that the purchasers’ lawyers failed to meet
the required standard of care because they should have been aware of red flags
regarding the title and should have investigated further (which would have
revealed the ongoing interest of the mortgagee in the property). The expert for the Respondent purchasers/new
owners contended that such a standard of care in this case was unreasonable and
unrealistic as lawyers should be able to rely on the Land Registry for updated
and accurate information – the principle of indefeasibility of title. Three principles of indefeasibility of title
embody the philosophy of the land titles system in Ontario: 1) the Land
Register is the perfect mirror of the state of title; 2) the purchaser need not
investigate past dealing with the land or search behind the Register; and, 3) the
state guarantees the accuracy of the Register and compensates any person who
suffers loss as a result of an inaccuracy.
The Application Judge rejected
the argument that the purchasers’ lawyers failed to meet the standard of care
required and identified the significant constraint on the ability of the Court
to rectify (change) the Land Register.
Subject to two exceptions, fraud and actual notice of an unregistered
interest, the Court cannot rectify the Register if it would interfere with the registered
interest of a bona fide purchaser for value (such as the Respondent
purchasers/new owners). Fraud was not
relevant in this case, so the Court considered whether the Respondent
purchasers/new owners had actual notice of the Applicant’s unregistered
mortgage. The Court found that whether a party received enough information to
prompt inquiry and what actions the party took to investigate the matter are
questions about constructive notice and are irrelevant to the actual notice
analysis. As the Court did not find that
the Respondent purchasers/new owners had actual notice, the Court had no
authority to order rectification to restore the priority position of the
Applicant’s first mortgage. The
Applicant’s recourse was to seek compensation from the Land Titles Assurance
Fund for the error made by the LRO.
Read the decision at: 2024 ONSC 3398 (CanLII).