Zombie Deeds (yes, Zombie Deeds)

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

Imagine the following scenario: Party X has entered into an Agreement of Purchase and Sale to sell her property to Party Y; all of the conditions of the sale have been fulfilled or waived; title searches have been completed; the closing date is next Monday; Party X comes into her real estate solicitor’s office on Thursday and signs all of the required closing documentation including an Authorization, Acknowledgement and Direction to her solicitor authorizing the solicitor to register an electronic Transfer/Deed in the Land Registry conveying ownership of the property to Party Y once the purchase funds have been received; Monday arrives and, sadly, Party X passed away over the weekend.  Party X wanted to complete the sale to Party Y and, indeed, was obligated to complete the sale to Party Y.  She already authorized her solicitor to register the Transfer/Deed to make that happen.  Can Party X’s solicitor not register the deed in accordance with the client’s wishes and obligations?

The answer is “no”.  If the real estate solicitor went ahead and attempted to register the Transfer/Deed on the basis of the Authorization, Acknowledgement and Direction signed by Party X before her death, the solicitor would be attempting to register what is commonly (and maybe a bit flippantly) referred to as a “Zombie Deed”.  For several years now, the Land Registry in Ontario has expressly prohibited the registration of such deeds on the basis that the authorization to register terminates when the vendor dies.  The late Director of Titles for Ontario, Jeffrey Lem, issued a bulletin in May, 2020 titled “Zombie Deeds are Dead!” with the following introduction:

As most of you know, the Director of Titles has always been opposed to the so-called “Zombie Deeds” – transfers registered by owners who have already died. Well, there is finally a case dead on point (pun intended) confirming that Zombie Deeds are improper in all circumstances.

Mr. Lem went on to discuss the decision of Madam Justice MacLeod-Beliveau of the Superior Court of Justice in Thompson v. Elliott released in March, 2020.  Justice MacLeod-Beliveau had confirmed that it is never appropriate for a solicitor to register a Zombie Deed:

I find the lawyer erred by registering the "zombie" deed/transfer severing the joint tenancy in the property after Ms. Elliott's death based on his erroneous understanding that her instructions survived her death. A court application for a declaration of an interest in land is the proper legal procedure to follow by the lawyer to correct the error made by the lawyer after her death.

The proper course of action to be taken by a lawyer in these circumstances upon the discovery of such an inadvertent error, is for the lawyer to bring an application in the Superior Court of Ontario requesting a certificate of pending litigation and a declaration of an interest in land and for a vesting order under s. 100 of the Courts of Justice Act, R.S.O. 1990, c. C.43 to be made, setting out all the material facts in support of the application for an interest in land to be determined by the court.

Despite the clear statements from Justice MacLeod-Beliveau and the Land Registry about how solicitors should handle Zombie Deed scenarios, problems still arise.  In April this year, Justice Myers of the Superior Court made an interim decision in a case that calls into question the direction to seek a vesting order as the alternative to attempting to register a Zombie Deed.  A woman on her deathbed transferred title to herself and her nephew as joint tenants.  The woman’s solicitor visited her in the afternoon and had her sign the transfer documentation.  She passed away before the documents were submitted for registration the following morning.    Following the direction of Justice MacLeod-Beliveau in Thompson v. Elliott, the aunt’s estate applied to the Court for a vesting order to permit the registration in the Land Registry of the conveyance of title from the Estate to the nephew.

Justice Myers identified a unfortunate problem with the vesting order request: “Here, the nephew holds title to the property at law. There is nothing for me to vest in him. … I do not understand a request for a court to vest title in the person who already holds it.”  By law, the nephew had become joint tenant with his aunt when the documents were signed and he took title by operation of the law of survivorship when his aunt passed away.  The vesting order was sought as a way to deal with the requirements for registration of the conveyance of ownership and the prohibition of the registration of Zombie Deeds.  If a vesting order is not available, what is the solution?

Justice Myers ended up adjourning the application before him to allow counsel to provide further legal authorities and also perhaps to serve the Director of Titles with the application.  Real estate solicitors across Ontario will no doubt await with bated breath the solution to this difficult situation.

Read the decision at: 2025 ONSC 2661 (CanLII)

Land Registry Errors and the Land Titles Assurance Fund

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

Mistakes sometimes happen, even in the land registry system.  The Land Titles Assurance Fund operates under the Land Titles Act and is designed to provide compensation to individuals for financial losses arising from real estate fraud or from errors and omissions of the land registration system.  To be eligible for compensation, a claimant must ensure the time required to file the claim has not expired – applications must be made within 6 years of suffering the loss – and the claim made must meet the criteria for coverage. Examples of eligible claims include fraud, errors or omissions by the land registration system, errors in recording land that is brought under the Land Titles Act, and errors in recording a registered document in the automated land registration system.

A decision of the Ontario Superior Court of Justice dealt with a situation where the Land Registry Office (“LRO”) had mistakenly deleted a valid and active first mortgage from title to a residential property.  The LRO deleted 23 instruments from the property identification number (“PIN”) assigned to the property, including the first mortgage.  Importantly, the mortgage was deleted without a discharge being formally registered or any reference to the registration number of the discharged mortgage so that anyone looking at the PIN would not see any reference to it.  Several years later, the homeowner sold the property to a new purchaser.  The lawyers involved conducted title searches which indicated that the first mortgage had been deleted from title and there were no legal claims or restrictions against the property.  There was nothing to suggest that the purchasers had any prior knowledge that the first mortgage had been mistakenly deleted from the PIN.  As far as the purchasers knew, the mortgagee to whom the homeowner vendor had given the first mortgage had no ongoing interest in the property.

The property was sold to the purchaser free any clear of any interest on the part of the original mortgagee.  When the original mortgagee found out that its first mortgage had been deleted, it asked the LRO to correct the problem.  The LRO cooperated and reinstated the mortgage by way of a Reinstatement Order registered on title.  That mortgage went into default (not surprisingly, since the new owners would not likely have known about it) and the original mortgagee sought to recover the debt from the new owners of the property.  The new owners applied to the Director of Titles for Ontario to have the Reinstatement Order set aside and to remove the order and the mortgage from title to the property. The Director of Titles determined that a member of LRO staff had unintentionally deleted the first mortgage and concluded that the reinstated mortgage should be removed from title.

The matter came to the Court as an application by the first mortgagee to reverse the decision of the Director of Titles and to have the first mortgage once again restored to title to the property.  The parties put forward competing expert opinions about the conduct of the real estate lawyers involved in the new owners’ purchase of the property.  The Applicant mortgagee argued that the purchasers’ lawyers failed to meet the required standard of care because they should have been aware of red flags regarding the title and should have investigated further (which would have revealed the ongoing interest of the mortgagee in the property).  The expert for the Respondent purchasers/new owners contended that such a standard of care in this case was unreasonable and unrealistic as lawyers should be able to rely on the Land Registry for updated and accurate information – the principle of indefeasibility of title.  Three principles of indefeasibility of title embody the philosophy of the land titles system in Ontario: 1) the Land Register is the perfect mirror of the state of title; 2) the purchaser need not investigate past dealing with the land or search behind the Register; and, 3) the state guarantees the accuracy of the Register and compensates any person who suffers loss as a result of an inaccuracy.

The Application Judge rejected the argument that the purchasers’ lawyers failed to meet the standard of care required and identified the significant constraint on the ability of the Court to rectify (change) the Land Register.  Subject to two exceptions, fraud and actual notice of an unregistered interest, the Court cannot rectify the Register if it would interfere with the registered interest of a bona fide purchaser for value (such as the Respondent purchasers/new owners).  Fraud was not relevant in this case, so the Court considered whether the Respondent purchasers/new owners had actual notice of the Applicant’s unregistered mortgage. The Court found that whether a party received enough information to prompt inquiry and what actions the party took to investigate the matter are questions about constructive notice and are irrelevant to the actual notice analysis.  As the Court did not find that the Respondent purchasers/new owners had actual notice, the Court had no authority to order rectification to restore the priority position of the Applicant’s first mortgage.  The Applicant’s recourse was to seek compensation from the Land Titles Assurance Fund for the error made by the LRO.

Read the decision at:  2024 ONSC 3398 (CanLII).

Divisional Court upholds land registry freeze in face of apparent "scheme"

The Ontario Divisional Court has upheld a decision of the Director of Land Titles to place a freeze on the land records for a piece of property in Bruce County.  Krystal Summer Williams had sought to register a "self-to-self" transfer of the property, which was still administered under the Registry Act system of land registration.  Under the registry system, a person dealing with the property only has to trace the chain of title back for forty years.  The property in this case had not been dealt with since 1936 and Ms. Williams applied to become the registered owner of the land.

Ms. Williams admitted that she did not own or have any interest in the property prior to registration, and the Director alleged that she was involved in a scheme to convey title to property that she does not own. 

The Divisional Court agreed and ruled that the Director had authority to impose the freeze in order to determine the propriety of the self-to-self transfer.  In the Court's view, this was "merely a scheme to create an interest in land where none exists." 

Read the decision at: Williams v. Ontario.