Husband Mortgages Home Without Wife’s Knowledge, Based on False Statement – Yet Mortgage Not Set Aside
In this unusual recent case, the outcome on a motion is not what you’d likely expect: the lender to a likely-fraudulent husband – who unbeknownst to the wife got a mortgage on the home they shared – was successful (for now) in resisting the wife’s motion to have that questionable mortgage set aside.
The couple had been married for 17 years, but throughout the course of the marriage the title to the matrimonial home was in the husband’s name only. Without the wife’s knowledge or consent, the husband obtained a $45,000 mortgage on the home from the lender; to achieve this, he had an untrue statement registered on title to the effect that “I am separated from my spouse and the property was not ordinarily occupied by us at the time of our separation as our family residence.” The same false statement was also repeated on the registration of the mortgage, and on a signed statement given to the lender by the husband.
(This deceptive statement was necessary because otherwise, under s. 21(1) of the Ontario Family Law Act, a spouse cannot “dispose of or encumber” an interest in the matrimonial home unless the other spouse consents, or if a separation agreement or court order allows it. And because the wife’s name was not on title in this case, the lender did not get notice that it was (or may be) a matrimonial home).
Not surprisingly, the wife brought a motion to set this mortgage aside, claiming among other things that the husband’s self-serving affidavit should not have been relied on by the lender to advance the mortgage funds. The lender opposed it, on the basis that the mortgage was actually valid and had been made in good faith, and that at the time it was given, the lender did not have notice that the property was a matrimonial home.
(The lender’s stated position sought to bring the transaction within the wording of s. 21(2) of the Family Law Act, which states that if a spouse encumbers the home in breach of s. 21(1), then the transaction can be set aside unless the person holding the interest (in this case, the lender) acquired it “for value, in good faith and without notice … that the property was a matrimonial home”. The other possible exception, under s. 21(3), is where the encumbering spouse makes a statement that he or she is separated and that the property was not ordinarily occupied by the spouses as a family residence).
Perhaps surprisingly, the wife’s motion to set aside the mortgage was dismissed.
In a nutshell, there was insufficient evidence in the wife’s favour. There was nothing to suggest that the lender knew the couple, or that the lender and the husband were in collusion. The particular circumstances did not give rise to a scenario that would invite suspicion by the lender, to the extent that it should reasonably required to make inquiries about the home’s status or obtain a statement from the wife that the property was not a matrimonial home.
Instead – and absent other evidence – the court was duty-bound to assume that this was an arms-length transaction and that the lender was a bona fide third-party lender. Here, there were no hallmarks that would put the lender on notice that the property was occupied as a family home; these were generally things such as the couple having the same address, or the mortgage application having information suggesting this was a family residence.
Rather, for Family Law Act purposes, the husband’s statement (though false) was sufficient “proof” that the property was not a matrimonial home – unless the lender had notice to the contrary. In this particular case, the lender did not, and the husband’s bald statement that he was separated did not put the lender on inquiry to determine the property’s status.
As the court put it:
It is certainly unfortunate that a borrowing spouse would make a false self-serving statement which results in an encumbrance on a matrimonial home without the knowledge or consent of the other spouse. Nevertheless, the issue here in whether the lender acquired the mortgage for value in good faith and without notice that the property was a matrimonial home.
The law has not yet advanced to the stage where lenders are required to look behind the statements of the borrowers. The lender was not required to obtain a statement from the wife that the property was not a matrimonial home.
In the circumstances the court could not justify setting aside the mortgage, and – because only the husband held title to the matrimonial home – the wife was not entitled to make a claim for equity in the home. Rather, she was only entitled (eventually) to an equalization payment based on the husband’s ownership.
(In simpler terms: the mortgage was not immediately set aside, but the parties’ respective rights would be untangled during later Family Law proceedings).
With that said, the court did order that there were to be no further dealings with the property until the parties resolved their issues in those Family Law proceedings or until another court-ordered otherwise. The wife was awarded her legal costs, however.
For the full text of the decision, see: