Francis N.J. Taman and Ksena J. Court
We’re going to continue our theme regarding writs and priorities. While not technically a mortgage case, Singh v. Mangat[1] raises some interesting implications when considered together with our last blog post.
It is not unusual to find individuals in financial trouble who are also undergoing marital difficulties. In Singh, Mr. Mangat was also involved in a matrimonial property dispute with his wife which began in 2007. One of the assets of the marriage was a house which was jointly owned by the spouses and a third party (the “House”). Each of the owners had a 1/3 interest in the house[2].
In 2012, some 5 years after the matrimonial property action had commenced, the plaintiff obtained a judgment against Mr. Mangat which was registered against Mr. Mangat’s interest in the House. A second writ by a different creditor was also registered against the House.[3] Finally, a civil enforcement agency (“CEA”), engaged by the plaintiff, registered a notice of intention to sell the House under the Civil Enforcement Act[4].
It was at this point that Mrs. Mangat realized that no Certificate of Lis Pendens (“CLP”) had been registered against the House with respect to her claim under the Matrimonial Property Act[5]. This was done in February 2013. Five additional writs were registered after the CLP. This created what was described as a “writ sandwich”.
Mr. Mangat’s 1/3 interest in the House was eventually sold by the civil enforcement agency to a relative of Mrs. Mangat. There was not enough money to pay out all the writs on title. The question arose as to how the proceeds of sale of the House should be distributed. Everyone agreed that the CLP under the MPA did not have priority over the writs filed before the CLP. The issue was whether the wife’s claim under the MPA had to be resolved before the writs were paid.
The Court canvassed two possible approaches. First, one could pay the Prior Writholders their claims as if the CLP was not registered and then resolve the MPA claim of the wife. The idea here appears to be that between the writholders, the CLP doesn’t affect their respective entitlements.[6] The Prior Writholders would get their proportionate share of the total of the writs. The distribution of the balance would be dealt with once the amount, if any, of the husband’s interest in the house was determined. The issue with this approach is that the amount received by the Prior Writholders could be delayed and they may actually receive less than they should considering their priority.
The second approach would be to pay the Prior Writholders 100% of their claim and then permit the MPA claim to be resolved. If there was any amount left over after the MPA claim was settled, then that would be shared amongst the Subsequent Writholders pari passu.[7] This would lead to the Prior Writholders being paid more than they should under the CEA.
Ultimately, the Court followed neither of those approaches. After a careful analysis of the MPA and CEA provisions that applied, Master Robertson determined that the writholders as a group took priority over the MPA claim. The reasoning centred on the fact that writ proceedings to sell the house had begun prior to the registration of the CLP.
The MPA adjusts ownership between spouses. However, the filing of the claim does not create an interest in land. It is merely a claim that, after the matrimonial claim is resolved, may become an interest in land. There is a priority for the CLP over the writs registered by the Subsequent Writholders because section 35 of the MPA creates that priority. However, it does not affect the priority of prior writholders.
The CEA specifically states that where there is a subsequent interest in land, the lands which have a writ registered against the title are subject to writ enforcement proceedings as if that subordinate interest in land did not exist.[8] Where an interest in land is sold under the writ proceedings pursuant to the CEA, a “distributable fund” is created. Prior registered interests are paid out and the purchaser obtains title clear of all prior and subsequent financial registrations.[9]
Section 96 of the CEA states that money realized through writ proceedings must be dealt with in accordance with Part 11 of the CEA.[10] Part 11 of the CEA puts an interesting twist on the situation. It says that any money received to which Part 11 applies is a distributable fund when received by a Civil Enforcement Agency.[11] It then goes on to note that all related writs that are in force have eligible claims against the distributable fund.[12] Those funds are then paid pari passu among the eligible claims after paying expenses associated with the writ proceedings and the $2000 priority granted to the creditor who undertook the writ proceedings.[13]
Master Robertson also noted that the CEA only contemplates a single distributable fund being created, so the idea of splitting the amounts recovered from the sale of the lands into two separate funds and dealing with each separately goes against the scheme of the CEA. As a result, Master Robertson, essentially sets out a two stage analysis. First, it must be determined whether any of the writs have priority over the CLP. If any of the writs do and if writ proceedings have commenced, then the amounts recovered will be distributed amoungst all eligible writholders regardless of whether they are registered before or after the MEP CLP.
The question that arises is whether this analysis will be extended to non-MEP CLPs and other intervening registrations. One difference between an MEP CLP and many other CLPs is that the MEP CLP gives notice of what would essentially be a change in ownership of the land or, if you will, an interest that may arise. Most other CLPs give notice of litigation regarding either a registered[14] or unregistered[15] interest that already exists. Caveats and other registrations also provide notice of existing interests. The analysis, however, could apply to pre-existing interests as well.
At the end of the day, however, the takeaway for lenders is clear – if you have a writ registered, you should be doing a debtor name search and registering your writ against the title to any property that is identified as being owned by the debtor by that search. Additionally, it is also likely in your best interest to commence proceedings to have the land sold under your writ. One of the principles that has survived from the confusing array of case law under the prior Execution Creditors Act is that although a writ binds all of a debtor’s exigible land that it is registered against, it is not the same a seizure. A seizure or writ proceedings require service and registration of a Notice of Intention to Sell.. Since some significance was placed on the fact that writ proceedings had been commenced when the CLP was filed in this instance, it would be prudent to place oneself in as favourable a position as possible.
Francis N.J. Taman and Ksena J. Court practice commercial and residential foreclosure and secured and unsecured debt collection at Bishop & McKenzie LLP in Calgary, Alberta.
[1] 2016 ABQB 349 (Master) (“Singh”).
[2] While it did not explicitly play a role in the decision, it would appear that they were tenants in common
[3] We will refer to Mr. Singh and the second writholder as the “Prior Writholders”. The balance of the writholders will be referred to as the “Subsequent Writholders”.
[4] R.S.A. 2000, c. C-15 (“CEA”).
[5] R.S.A. 2000, c. M-8 (“MPA”).
[6] To use the language adopted later in the judgment, there would be no separation of writholder claims.
[7] This means in proportion to the amounts of their respective claims and is the approach set out in the CEA. This approach was described as the separation of writholder claims.
[9] Non-financial registrations such utility rights of way and easements would generally remain on title.
[12] CEA, s. 99(1)(a). Section 99(1)(b) notes that costs that the Court orders to be paid out of the fund under Section 103(2) also constitute an eligible claim.
[14] In the case of a mortgage which is being foreclosed upon.
[15] For example, fraud.
Alberta Foreclosure Blog 