Ksena J. Court and Francis N.J. Taman
Occasionally when we are in Court, we hear novel arguments that attempt to challenge what was thought to be previously settled law. On one such recent Court attendance, we heard such arguments being made in Classic Mortgage Corp. v. Bourgeois and Haylow,[1] which changes the way net sale proceeds in a foreclosure action are distributed to subsequent encumbrancers after the first mortgagee is paid out.
In this case, the defendants were owners of a home as joint tenants. The home was sold through the foreclosure proceedings and the remaining equity of approximately $75,000 was paid into Court. There were several writs filed against the property. Canada Revenue Agency received the first $20,000 of the equity based upon its claim of priority under the Income Tax Act. The remaining writholders had claims registered only against Mr. Bourgeois’ interest. The largest writholder asked the Court to pay the all of the remaining proceeds out to the writholders pro-rata. The issue before the Court was whether half of the remaining proceeds should be paid to Ms. Haylow, as a joint tenant, with the other half being paid pro-rata to the writholders. We were in Court on February 2, 2016 when arguments were made, and Master Laycock reserved his decision. As the decision has a large impact upon the advice that we give to many of our lender clients, we were interested in the outcome.
Counsel for the writholder argued that because the defendants were joint tenants at the time that the writ was registered, the writ attached to the whole of the net sale proceeds, not just half. This argument is based upon the principles of joint tenancy. “Although as between themselves the joint tenants have separate rights, as against everyone else they are in the position of a single owner…Each joint tenant holds the whole and holds nothing. That is he holds the whole jointly and nothing separately.”[2]
On February 5, 2016, Master Laycock rendered his decision and did not deviate from what he considered to be prior similar decisions. In La France[3] and Re: Finley[4], the Court had held that writs registered against the interest of only one joint tenant did not affect the other joint tenant’s entitlement to half of the net sale proceeds. Notwithstanding that the case before Master Laycock was a forced sale through foreclosure proceedings rather than a voluntary sale by the owners, he felt bound to follow these decisions. As such, Master Laycock held that Ms. Haylow was entitled to half of the remaining net sale proceeds and the writholders shared the remaining half pro-rata.
The decision of Master Laycock was appealed, and Justice Anderson overturned the decision. Justice Anderson found that Canadian Imperial Bank of Commerce v. 3L Trucking Ltd.[5] was a case on point. In that case, the Court referred to the above quoted principle that joint tenants are in the position of a single owner.
Counsel for the primary writholder also argued that under s. 100 of the Civil Enforcement Act,[6] a distributable fund (which would include excess proceeds in a foreclosure sale) first goes to pay eligible claims and it is only after those eligible claims are paid that the remaining balance gets paid “to the enforcement debtor or to any other person who is entitled to the money”. [emphasis added]
The Court also noted that Ms. Haylow took no steps to protect her interest by seeking formal severance of the joint tenancy. Thus, the Court concluded that the full amount of the remaining sale proceeds should be distributed to the writholders on a pro-rata basis.
In our view, the arguments made by the writholder make sense. Under the Civil Enforcement Act, a writ attaches and binds the interest in the property of the debtor at the time that the writ is filed. If the debtor is a joint tenant, he has an interest in the whole of the property. If the writ is filed before the joint tenancy is severed in the foreclosure proceedings or otherwise, then the writ should attach to the debtor’s whole interest, not just half. When lenders lend to joint tenants, they lend based upon the whole of the equity in a property, not just half. While this creates some risk to the non-debtor joint tenant that they could be “made liable” for a debt that they didn’t incur, often the non-debtor joint tenant is related in some fashion to the debtor, and if the non-debtor receives some of the equity, it could be funnelled back to the debtor through this relationship. It will be interesting to see how the Court responds to this balancing of interests between the non-debtor joint tenant and the writholder.
Ksena J. Court and Francis N.J. Taman practice commercial and residential foreclosure and secured and unsecured debt collection at Bishop & McKenzie LLP in Calgary, Alberta.
[1] Action No. 1401-08766, February 2, 2016, Alta. Master (unreported), appealed April 5, 2016, Alta. Q.B. (unreported).
[2] Ibid. as quoted by Master Laycock from Megarry and Wade’s The Law of Real Property, 7th Ed. And J.G. Riddall’s Land Law, 7th Ed.
[3] [1983] 1 W.W.R. 168 (Alta. Q.B.)
[4] [1977] 7 A.R. 26 (Alta. Dist. Ct.)
[5] [1996] 2 W.W.R. 637 (Alta. Q.B.)
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