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Chapter 16

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Law and Business
LAW 603
Gil Lan

Chapter 16 – Real Property: Sales and Mortgages Registration Systems: system for documenting interests in land Two types of registration systems: 1. Registry system a. Used in maritime provinces and parts of Ontario and Manitoba b. Allows others to search title to establish chain of title; a series of transactions in which ownership was validly passed from one person to the next. c. Provides users opportunity to view and evaluate documents that affect real property d. The 40 year rule applies – meaning that you are responsible for searching the title in the last 40 years, but no more. e. The government’s role in this system is passive; it provides access to the documents, but it does not guarantee their accuracy. f. Competing claims for titles in land are generally resolved by the timing of registration. To manage your risk, register the transfer documents as soon as the transfer occurs. 2. Land Titles system a. Western provinces and parts of Ontario and Manitoba b. Certificate of title generated for each piece of land virtually guaranteeing the validity of the interests that are listed. c. Doctrine of Indefeasibility: certificate usually cannot be defeated. Based on three principles: i. Mirror principle: all interests on certificate are valid. Certificate of title mirror reality ii. Curtain principle: the only valid interests in a property generally are the ones listed in the certificate. No need to lift the curtain to discover interests iii. Insurance principle: compensation for mistakes in the system. Assurance fund protects victims of system errors. If you lose your land as a result of an error in the system you are entitled to payment of money. Mortgage Fraud – a victim of fraud may be required to exhaust all other potential sources of relief before claiming against the assurance fund. Indefeasibility can cause hardship to original owner. Typical example: - Innocent person owns Blackacre, a piece of land - Robgue steals innocent person’s identity and transfer Blackacre to accomplice - Accomplice uses land as security for a loan from a bank - Rogue and accomplice disappear - Bank tries to enforce the mortgage against Blackacre - Innocent person (original owner) discovers the fraud - Land titles legislation amendments being contemplated - Courts starting to reconsider principle of indefeasibility o Adoption of new concept of “deferred indefeasibility”  Principle of indefeasibility is deferred, or postponed, until an interest is registered in favour of a person who did not deal with the rogue  Interest registered by a person who did deal with the rogue is defeasible and may be defeated by original owner  If a bank carelessly allows fraud to occur, it may be responsible for the resulting losses. Unregistered Interests – may be effective in a land titles system and a registry system. - Some interests valid without registration, such as o Short-term leases; say 3-year lease, may be enforceable against a purchaser. o Prescription and adverse possession; possible for a person to acquire an interest in land as a result of a long period of use or occupation. o Public easements (eg sewers, cable lines) o Unpaid taxes (leading to seizure and sale); you may have to pay any outstanding taxes on a property that you purchase if you are not careful and don’t search beforehand. o Unpaid creditors; writs of execution may be registered with sheriff. Land that you purchase may be subject to seizure and sale if the previous owner had outstanding debts owed to the courts. Risk Management in Land Sales As a matter of risk management, use the following individuals when purchasing land: - Real estate agent: locate property and professionals - Lawyer: conduct searches, execute documents, etc - Appraiser: assess value of property - Surveyor: determine boundaries of property - Inspector: assess condition of property - Environmental auditor: identify environmental hazards In summary each of these individuals they can prevent problems and provide compensation. Agreement for Purchase and Sale – a contract for the sale of an interest in land must be evidenced in writing. The parties must agree on all of the important terms. - The vendor and the purchaser need not settle every point at the outset. It is very common for an agreement of purchase and sale to include conditions. o Condition (or condition precedent) is a requirement that must be satisfied before the transaction can be completed. A contract, once created, must be performed even if the agreement turns out to have unexpected costs. If any condition is not met then the sale will not be completed. One party might still be held liable. If a condition fails due to lack of effort, the other party may be entitled to damages. - Common conditions that may be put into the agreement for purchase and sale include: home inspection, financing, sale of house, solicitor’s approval, zoning (for commercial properties). - Closing: completion of sale o Conditions removed and final searches done - Adjustments o Price varied to reflect prepayments - Document used to transfer title o Registry system: deed of conveyance o Land titles system: transfer Remedies – pg. 385** - General contractual remedies for breach of contract o Compensatory damages o Specific performance  Awarded only when monetary damages inadequate - Special remedies: lien (ability to seize and sell) o Purchaser’s lien: created whenever the purchaser pays money to the vendor. Mechanism allowing the purchaser to have the land sold to recover the deposit if the deal falls through. (Register the lien for security) o Vendor’s lien: If the vendor sells land on credit without insisting upon full payment at the time of closing. Mechanism that allows the vendor to have the property sold to receive purchase price, or outstanding debt. (Register the lien for security) o A lien is a type of security interest and may provide priority over other creditors. Mortgages – an interest in land that provides security for the repayment of a debt. Pg. 386** - Method of payment for purchase of land o Land price usually exceeds immediate resources o Purchase usually financed through mortgage - Parties to mortgage o Mortgagor: borrower who creat
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