By John Barzo, Associate
Sometimes a litigation file acts as a lightning rod for multiple areas of law that I am not otherwise regularly engaged in (in this case Family Law and Mortgage transactions). A matter I am currently working on is just such an example.
Essentially, legal title to a very nice and significant cottage property was in the husband’s name. It was and is a great family property on the water, used for the usual summer recreational activities, but also for holidays, including Thanksgiving, Easter and Christmas.
Husband was a co-owner of a land development business which needed funds for continued operations. So he offered up the cottage property as collateral security.
Under the Family Law Act, a property that is ordinarily occupied by spouses as a family residence constitutes a “matrimonial home”. This elevated status provides some protection to a spouse who does not have his or her name on the legal title. The Act prohibits someone from selling or mortgaging such a property without obtaining the spouses consent.
More importantly, no buyer or lender will conclude a transaction without either a consent signed by the spouse, or a declaration by the title holder (in this case, the husband) confirming that it is not ordinarily occupied as a family residence.
What if the husband is….to put it gently, “incorrect” in his declaration?
If the Act is contravened, it could result in a transaction, or a mortgage in being completely set aside by the court. What the law does however is to set out that the making of the declaration is sufficient proof that the property is not a matrimonial home. Thus if the statement turns out to be incorrect, the transaction for either the lender or purchaser is still valid.
There is one exception however. If the purchaser or lender had “notice to the contrary”. What does that mean? Firstly, it does not have to be “actual notice”. It can also mean constructive and / or imputed notice. Imputed notice is where your agent or representative (real estate agent, mortgage broker, lawyer) has such information. This information would be deemed notice to you, even if no one told you.
Constructive notice is a bit trickier. It is where you (or others acting on your behalf) are aware of facts or information that ought to put you to an inquiry. It’s intent is to avoid the use the old “hear no evil, see no evil, speak no evil” approach, otherwise known as “willful blindness”.
What is probably not as clear as it should be (even to lawyers) is that the “declaration” indicating that the home is not a matrimonial home, is not a cure-all that will effectively insulate all transactions. The lender or purchaser can only rely on the declaration if he or she had no information that would indicate that the true state of affairs was otherwise.