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Fraud - Title. Sanasie v. Chateramdas
In Sanasie v. Chateramdas (Ont Div Ct, 2026) the Ontario Divisional Court dismissed two appeals related to title and mortgage fraud, here brought against orders "granting partial summary judgement, setting aside both the transfer of the home and registration of the mortgage, and ordered punitive damages to be paid by the adult child".
Here the court considers issues of title fraud [under Land Titles Act s.78]:Analysis:
[70] On November 23, 2022, RiverRock offered a first mortgage to Melissa in the sum of $760,000 by a conditional mortgage commitment. The Property had already been transferred into her name. RiverRock submits that they were not made aware that the transfer of Property to Melissa was being challenged until they received a letter from the Chateramdas’ lawyer, dated February 2, 2024.
[71] The essence of RiverRock’s submission is that it is the intention of the LTA to provide certainty through registration. It should be entitled to rely on the registration of ownership, and therefore the mortgage was valid and unaffected by the fraud. RiverRock further submits that the doctrine of deferred indefeasibility was superseded by the 2006 amendments to the LTA.
[72] Section 78(4) of the LTA provides as follows:(4) When registered, an instrument shall be deemed to be embodied in the register and to be effective according to its nature and intent, and to create, transfer, charge or discharge, as the case requires, the land or estate or interest therein mentioned in the register. [73] The LTA was amended in 2006 to provide limited exceptions to the absolute nature of s.78(4), as follows:(4.1) Subsection (4) does not apply to a fraudulent instrument that is registered on or after October 19, 2006.
(4.2) Nothing in subsection (4.1) invalidates the effect of a registered instrument that is not a fraudulent instrument described in that subsection, including instruments registered subsequent to such a fraudulent instrument. [74] The key to an application under s. 78(4.1) is the definition of a “fraudulent instrument”. “Fraudulent instrument” is defined under s.1 of the LTA to include an instrument "under which a fraudulent person purports to receive or transfer an estate or interest in land". Pursuant to s. 155 of the LTA, an instrument that is fraudulent and void remains so despite having been registered. Section 155 states:155. Subject to this Act, a fraudulent instrument that, if unregistered, would be fraudulent and void is, despite registration, fraudulent and void in like manner. [75] RiverRock does not dispute that the transfer of the Property to Melissa is a fraudulent instrument. However, they submit the motion judge erred in finding that the charge was also a fraudulent instrument. Whether the charge was a “fraudulent instrument” turns on whether Melissa was a “fraudulent person” in relation to the charge. This is the crux of the appeal. Therefore, to determine if this case comes within s.78(4.1), it is important to determine whether Melissa was a “fraudulent person”.
[76] The question of whether Melissa falls within the definition of “fraudulent person”, is a question of mixed fact and law. It is therefore reviewable for palpable and overriding error, absent an extricable error of law.
[77] A "fraudulent person" is defined in s. 1, as a person who executes or purports to execute an instrument if:a. the person forged the instrument,
b. the person is a fictitious person, or
c. the person holds oneself out in the instrument to be, but knows that the person is not, the registered owner of the estate or interest in land affected by the instrument. [78] The motion judge found that Melissa was a person who holds herself out in the instrument to be, but knows that she is not, the registered owner of the estate or interest in land affected by the instrument: Decision para.89.
[79] RiverRock submits that the motion judge erred by adding in the word “true” before the word “registered” owner and that the definition of fraudulent person does not apply if the person in the instrument is the registered owner.
[80] RiverRock submits that there were two separate transactions, first the transfer and registration of title on November 21, 2023, and then the financing of the mortgage on November 23, 2022, with registration of the charge taking place on December 8, 2022.
[81] RiverRock submits that the doctrine of deferred indefeasibility does not apply because it was superseded or incorporated into the 2006 amendments to the Act. It submits that s.78(4.2) was included to ensure that if an instrument is registered subsequent to a fraudulent instrument, it is nonetheless valid. For the following reasons, I do not accept these arguments. The doctrine of deferred indefeasibility means that a party dealing with a fraudster (an intermediate owner) may not be able to uphold its own instrument given for valid consideration, but any party obtaining title thereafter (a deferred owner) takes title despite the earlier fraud.
[82] The motion judge correctly considered the modern approach to statutory interpretation which requires the words of an act “to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of [the legislator]”: Bell ExpressVu Limited Partnership v. R., 2002 SCC 42, [2002] 2 SCR 559 at para. 26. The court must consider the text, context, and purpose of the legislation: Froom v. Lafontaine, 2023 ONCA 519 (“Froom”) at para. 20; Decision, para.59.
[83] The motion judge then went on to review the leading case law that applies the former and current relevant provisions of the LTA that sheds important light on the words, object, context, and intention of the legislation.
[84] The motion judge considered the predecessor provisions to those at issue in this case which were considered by the Court of Appeal in Household Realty Corporation Ltd. v. Liu, 2005 CanLII 43402 (ONCA) (“Household Realty”)where the Court found: 1) the legislation protected the mortgagee’s interest; 2) the mortgages had been given for valuable consideration without notice of the fraud; and 3) once they were registered, the mortgages were effective: Decision, para.61.
[85] The legislature then amended the LTA to add ss. 78(4.1) and (4.2), as set out above.
[86] The motion judge next considered the case of Lawrence v. Wright, 2006 CanLII 24129; Lawrence v. Maple Trust Company, 2007 ONCA 74 (“Lawrence”). Although the appeal was decided after the LTA amendments came into force, it was determined under the previous provisions, which were in effect at the time of the transaction at issue. The Court of Appeal determined that Household Realty had been incorrectly decided.
[87] The motion judge noted that Lawrence, like the case now before the court, involved a fraudulent transfer by Wright and subsequent mortgage to a third party, Maple Trust. The Court of Appeal found that Wright never took valid title to the property because he obtained it by fraud and was therefore not a registered owner. In accordance with s. 68(1) of the LTA, only a registered owner may give valid charges on land. Maple Trust was the intermediate owner of an interest in the property. It had an opportunity to avoid the fraud. It did not take from a registered owner. Therefore, despite registering its charge, Maple Trust lost in a contest with the true registered owner, Ms. Lawrence. Accordingly, the charge against the property in favour of Maple Trust was set aside.
[88] The motion judge then went on to review the subsequent case law which considered the amended LTA provisions. She correctly notes that the amendments were not aimed at, and do not have the effect of dealing with fraud at large (Decision, para.73) and that it is not the theories of the LTA that determine what is and what is not valid, it is the LTA itself (Decision at para.74). She properly distinguished the decisions relied upon by RiverRock (CIBC Mortgages Inc. v. Computershare Trust Company of Canada, 2016 ONSC 7094 (Div. Ct.) (“Computershare”); 1168760 Ontario Inc. v. 6706037 Canada Inc., 2019 ONSC 4702, 7 R.P.R. (6th) 48 (Div. Ct.), Froom, supra, and Hillmount Capital Mortgages Inc. v. Onsori-Saisa, 2024 ONSC 4481.
[89] The Court of Appeal recently commented on the issue of the amendments to the LTA at para. 26 of Froom:The 2006 amendments to the LTA were passed in the wake of this court's decision in Household Realty and before the court overruled that decision in Lawrence. The amendments were aimed at ensuring that fraudulent instruments would not be given effect in the title register. The legislative debates evidence a concern about real estate fraud and the attendant risk that a property owner might lose their property or become responsible for a fraudulent mortgage .... [90] The Court of Appeal was clear: “Ownership of a person's home is fraudulently transferred. The property is then mortgaged. In a contest between the two innocent parties -- the homeowner and the lender of mortgage moneys -- who wins? This appeal answers that question in favour of the homeowner.”: Lawrence, at para. 1.
[91] In view of the legislative history of the LTA, and subsequent case law, there is little doubt that the LTA incorporates the doctrine of deferred indefeasibility and should be interpreted accordingly. The LTA operates to put the obligation on the party acquiring the interest in land to ensure that it acquires that interest from the true owner: Froom, at para. 70.
[92] On the theory of deferred indefeasibility, registration of a void instrument does not cure its defect, thus neither the instrument nor its registration gives good title. As set out by the Court in Froom, starting at paragraph 40:[40] ... Under this doctrine, the risk of fraud is borne by the immediate parties to the fraudulent transaction. Subsequent parties may rely upon the Register. Thus, the indefeasibility of the registered title is postponed and is applied only on a subsequent conveyance to a bona fide purchaser for value. [page 46]
[41] This approach places the risk of fraud on the party who, by due diligence, has an opportunity to uncover it and possibly prevent it. The result requires a mortgage lender to protect itself to ensure that it is receiving a genuine mortgage before advancing the funds. [93] The law is aimed to protect innocent parties who do not have the opportunity to investigate the fraud themselves. Here RiverRock had the opportunity to investigate the fraud whereas the Chateramdas are purely innocent.
[94] In the case of Computershare, relied upon by RiverRock, the property owners committed fraud by fraudulently discharging a first mortgage. They then proceeded to obtain another mortgage on the same property. This case is easily distinguishable. The fraud in that case was the concealment of the first mortgage and cannot be found in the instrument itself – whereas here the fraud was in the ownership – which is found in the document itself.
[95] Section 66 of the LTA provides:66 Every transfer or charge signed by a registered owner, or others claiming by transfer through or under a registered owner, purporting to transfer or charge freehold or leasehold land, or an interest therein, capable of being registered, or purporting to transfer a charge, shall, until cut out by a conflicting registration, confer upon the person intended to take under the transfer or charge a right to be registered as the owner of the land or charge and, where a person applies to be registered under this section, the land registrar may, either forthwith or after requiring such notices to be given as the land registrar considers expedient, register the applicant as owner, subject to such encumbrances, if any, as the condition of the title requires, although the transfer or charge has been executed or bears date prior to the entry of the transferor or chargor as the owner of the land or charge.[Emphasis added] [96] In this case, it is uncontested that the Transfer was never signed by the Chateramdas who had the authority under s. 87 to transfer the Property. By operation of these provisions, the Chateramdas therefore remained the "registered owners" of the Property.
[97] The Director submits that in the Charge, Melissa falsely and knowingly held herself out to be the registered owner of the Property because she purported to exercise powers granted exclusively to the registered owner with knowledge that she was not entitled to do so. This brought Melissa within the scope of paragraph (c) of the LTA's definition of a "fraudulent person". As s. 93(1) of the LTA makes clear, only a "registered owner" - in this case, the Chateramdas - may charge land securing the payment of money.
[98] “Registered” is defined in the LTA as “registered under this Act”. Melissa may have registered the charge, but it was not registered under and in accordance with the LTA.
[99] As the Court of Appeal explained, "the mere registration of an instrument that is void because of fraud does not cure the defect for the party who immediately acquires the property by means of that fraudulent instrument, but the next person dealing with the property may rely on the fraudulent document and its registration and takes good title.": Froom, at para. 66.
[100] The motion judge made the express finding that RiverRock had an opportunity to discover Melissa's fraud. As the motion judge noted, "[i]f a lender commits to a maximum four-hour turnaround time, it is undoubtedly exposing itself to some risk as an intermediate owner”: Decision, para.85. Further, on the mortgage application, Melissa stated that her address was Betony Drive but subsequently stated that she resides at 152 Fawcett Trail.
[101] By codifying the doctrine of deferred indefeasibility, the Legislature fully intended the result in this case. Namely, the interests of intermediate owners like RiverRock must yield to those of innocent homeowners like the Chateramdas.
[102] As summarized by the motion judge:[89] The case now before the court is markedly different from Computershare, 1168760 Ontario Inc., Froom, and Hillmount. Here, the fraud goes to the very issue of title, and the issue of whether Melissa was the "true" owner and therefore legally able to convey an interest in land. I note that in both Computershare and Froom, the Divisional Court and Court of Appeal respectively used the language of "true owner" in their analyses of the LTA provisions (Computershare para. 53, Froom para. 70). Melissa's actions in this case are exactly the kind of fraud the amendments were meant to protect against. The definition of fraudulent person is intended to, and does, capture this very situation. Melissa knew she had no legal interest in the Property. She held herself out to be, but knew she was not, the true registered owner of the land. She purported to take title by fraud and then convey an interest she knew she did not have. She meets the definition of fraudulent person as defined in clause (c) of the LTA definition vis-à-vis the charge.
[90] Given that Melissa is a fraudulent person, the mortgage is a fraudulent instrument and void against the Property and the plaintiffs. The register must be rectified to delete it from title. [103] I therefore find no palpable or overriding error in the motion judge’s findings of facts and no error in the law as set out by the motion judge. The appeal by RiverRock is also dismissed.
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