The Ontario Land Titles Act pushes onto an owner the risk of the owner’s transfer being void. It does so, even if the owner took proper care when buying. This is an outdated idea. Most modern land titles systems don’t use it.
Ontario’s Bill 27, the Burden Reduction Act, 2016, includes a major change to the Ontario Land Titles Act. The bill aims to modernize Acts and reduce their burden. The bill would put a new definition of a “fraudulent instrument” into the Ontario Land Titles Act. This would push even more risk onto an owner. It would make the Act even more outdated. In that way, Bill 27 would do the opposite of what it aims to do.
How the land titles system serves the economy
A land titles system serves the economy, by simplifying real estate transactions. It guarantees that an owner has the right shown on the register. It also makes it easier for the owner the owner, by guaranteeing a mortgage.
A guarantee could rarely be mistaken. The system could cause the mistake. But usually something outside the system does so. Very rarely, fraud causes a mistake, usually over a home.
When there’s a mistake, someone has to lose. It could be the true owner. But often the system can correct a mistake, so that the loss falls on a buyer or new lender.
Either way, the system backs its guarantees by covering the loss. In effect, a good land titles system acts as an insurer, so that no one bears all the loss caused by a rare mistake. This also keeps the system honest.
A land titles system depends on owners being able trust the government and on the integrity of the system.
How Ontario’s system already falls short
Ontario’s land titles system is seriously behind other modern land titles systems. It pushes a risk onto a person who receives a transfer or mortgage. This is the entire risk of the buyer’s or lender’s transfer or mortgage being “void.” This can hurt even a careful buyer or lender.
Most land titles systems in Canada, Australia and New Zealand have never done this. England hasn’t done it for around 100 years.
When Ontario’s land titles system does the above, it follows an outdated legal doctrine called “deferred indefeasibility” (or delayed guarantee). Before some changes to the Act in 2006, Ontario wasn’t sure what the doctrine was; or how it came about; or whether the system used it. There’s no good reason for using it in a modern land titles system.
In 2006, Ontario gave some relief to homeowners. The relief was very sparing. If the homeowner had title insurance, Ontario tried to get the insurer to bear the loss (and most new homeowners do get title insurance). Of course, increasing losses to an insurer indirectly hurts the owners, who pay the premiums.
How Bill 27 would make the system worse
A small part of Bill 27 proposes to increase the risk. It would add to the burden in all real estate transactions, in order to reduce a very small risk to the government. It would do nothing to use Ontario’s technology to combat fraud, but merely relieve the system from a need to do so.
Changes in 2006 removed the guarantees for a “fraudulent instrument.” This is now mainly an instrument that’s both fraudulent and void. But the changes unwisely allowed the government to add instruments by a regulation.
Bill 27 would widen the meaning of “fraudulent instrument.” Under Bill 27, the Ontario Land Titles Act wouldn’t guarantee a right (1) even if the instrument wasn’t void, and (2) even it was a later instrument that’s neither fraudulent nor void. Every buyer or lender would have to become a detective to look for (1) any dishonesty (even minor) and (2) for that dishonesty in earlier (and possibly much earlier) instruments. The buyer or lender would bear the risk of not finding that dishonesty, however impracticable it might be to find it.
Bill 27 might also hurt buyers and lenders as of October 19, 2006. If so, it would even go against the rule of law in Ontario.
Why is Ontario backsliding?
Ontario was the first place in the world to move to electronic registration. The move was a remarkable achievement.
Ontario had to convert millions of properties to land titles, and wisely decided to streamline the process. It took the risk of compensating for mistakes, in order to save much larger costs in the conversions. This put big demands on the system. It had a huge job to do. It had enormous powers over owners’ rights. It also had to admit and correct its own mistakes, and to compensate for them.
In the 2006 changes to the Ontario Registry Act, the system chose to try in effect to renege on the guarantees given on the conversions. It even tried to reverse an Ontario Court of Appeal decision.
Unfortunately, Bill 27 shows that the land titles system needs to refresh its mission to promote good law and good legal policy.
Should Ontario rely on title insurance instead of a land titles system?
Ontario has always kept excellent land records. For over 200 years, governments and owners have put a lot of money and effort into this.
In contrast, Ontario’s neighbours to the south often rely on private title insurance. Recently Ontario too has come to do so. This is cheap for homeowners, but expensive for businesses. Of course, it covers the risks that the land titles system pushes onto a buyer or lender.
If the world is moving towards relying on private title insurance, maybe Ontario will move there too. By hollowing out the land titles system, Ontario is already increasing the need for title insurance. But Ontario should consider the options carefully and only then decide which way to go.
What Ontario SHOULD NOT do now
Ontario needs to update its Ontario Land Titles Act. In 2006, Ontario rushed changes through that were badly drafted. In spite of all, the Act serves Ontario reasonably well. What Ontario needs to do now is to deepen its understanding of the Act, as it now is.
Ontario should not now make any major changes, like those in Bill 27. If it makes any major changes, it should first both have experts study them and get full input from the public.
The 2006 changes were in an omnibus bill, which became law while the courts were deciding an important case. Soon afterwards, in the Lawrence case, the Ontario Court of Appeal confirmed that Ontario used deferred indefeasibility. Neither the 2006 changes nor the court decision showed properly what deferred indefeasibility was, or how it came to be part of the Act.
In the Lawrence case, Susan Lawrence owned a home. Fraudsters registered a transfer to “Thomas Wright,” who wasn’t a real person. The fraudsters then gave a registered mortgage by “Thomas Wright” to Maple Trust. Both the transfer and mortgage were void, because a “person” who isn’t a real person can’t receive a transfer or give a mortgage. The Ontario Court of Appeal correctly decided that the Act didn’t guarantee either the transfer or the mortgage. So Susan Lawrence got her home back.
Now, nearly 10 years after the 2006 changes, another case is under appeal. The Ontario Divisional Court is to hear the appeal in October. Again, Ontario is rushing changes through in an omnibus bill. Again, Ontario isn’t sure what deferred indefeasibility is. Ontario is not choosing to move forward. Instead, Ontario would be pushing much more risk onto buyers than the already outdated deferred indefeasibility does.
The current case is CIBC v. Computershare. In it, the Lowtans owned a home and had a first mortgage with Computershare. They registered a fraudulent discharge of the mortgage, but hid the fraud by continuing to make the payments. Much later, they gave a new first mortgage to CIBC. The discharge was void, but the CIBC mortgage was valid, and so the Act guaranteed that the CIBC mortgage was a valid first mortgage. However, the trial judge misinterpreted part of the 2006 changes and decided otherwise.
What Ontario SHOULD do now
Bill 27 should now define a “fraudulent instrument” in the following way:
- The definition should merely reflect the existing outdated idea.
- The definition should remove the power in the 2006 changes to make the Act even more outdated by a regulation. (The definition deals with a key part of the Act. The Act should deal with it, not a regulation.)
- The definition should say that it applies only to an instrument registered after the change takes effect.
A suggested redraft of the changes
- (1) The definitions of “fraudulent instrument” and “fraudulent person” in section 1 of the Land Titles Act are repealed and the following substituted:
“fraudulent instrument” means a registered document that, if unregistered, would be fraudulent and void, and includes a document,
(a) that is forged,
(b) that is given under the purported authority of a power of attorney that is forged, and
(c) under which a person that purports to receive or give a right under the document is a fictitious person.
(1.1) The definition in subsection (1) applies only to a document that is registered on or after the day on which the Burden Reduction Act, 2016 receives Royal Assent.
A case comment CIBC v. Computershare, on the website of the Canadian Legal Information Institute, contains detailed comments:
 1387881 Ontario Inc. v. Ramsay, 2005 CanLII 23211 (ON CA).
 Lawrence v. Maple Trust Company, 2007 ONCA 74 (CanLII).
 CIBC Mortgages Inc. v. Computershare Trust Co. of Canada, 2015 ONSC 543 (CanLII)