Friday, July 27, 2012

Deceased Joint Interest Extinguished Upon Death

joint ownership
Joint Tenancy Thwarts Bankruptcy

Ontario Real Estate Source

By Brian Madigan LL.B.

Having property registered in joint tenancy actually worked quite favourably.

A doctor acquired a matrimonial home and placed the title in his name together with his wife as joint tenants. The doctor then obtained a loan to finance his medical practice from the Bank. His wife was not asked to co-sign the loan.

When the doctor passed away, there were insufficient funds in his estate to pay the Bank in full. The doctor’s wife had already acquired full title to the matrimonial home by “right of survivorship” which goes with joint tenancy.

As luck would have it, Parliament had made some recent amendments to the Bankruptcy and Insolvency Act (BIA).

Section 96 of the new BIA allows a creditor to make application to Court to set aside a transfer of property:

1)     to a non-arms length party,
2)     at less than fair value,
3)     made within one year of the bankruptcy.

The previous applicable provision under the old Bankruptcy and Insolvency Act would have required proof of intent to deprive one creditor at the expense of another. Proof of intent is no longer required.

So, what did the Bank do? Write off the balance of the loan as a bad debt?

No, it sued the widow!

It placed the estate in bankruptcy and claimed that one half the value of the matrimonial home should transfer back to the estate to satisfy the amount outstanding on the loan.
This matter came on for hearing in the Superior Court of Ontario. It required the Court to analyze just exactly what happens in joint tenancy, and just precisely how does that “survivorship provision” really work.

Many legal decisions have often said that the deceased’s interest in the property is transferred upon their death to the surviving joint tenant. And, for the most part, such an analysis is more than sufficient.

However, in this particular case, because of the new wording contained in the Bankruptcy and Insolvency Act, the real method of acquisition of the deceased’s interest by the survivor is at issue.

The Court concluded:

1)     the deceased joint tenant’s interest is extinguished upon death,
2)     by operation of law, the survivor acquires the whole,
3)     there is no “transfer” within the meaning of the BIA,
4)     if there is no transfer, there is nothing which can be set aside.

You might like to think the joint tenancy is “the answer”, however, it is actually fraught with difficulties. In this case it worked out, and the widow kept the house, but not always.

Be sure to obtain legal advice from a lawyer or solicitor practicing real estate law or estate law before making a determination with respect to title.

And, if interested have a look at the decision of Judge R. Mesbur in the Cameron Estate ats. Bank of Nova Scotia (31 October 2011, Ontario Superior Court).

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.

Building Permits in Toronto ~ Better Safe than Sorry!

half house value

Building without a Permit can be Costly!!!

Ontario Real Estate Source

By Brian Madigan LL.B.

This is the lesson learned by an elderly Toronto couple. Mr. and Mrs. Tseng purchased their older turn of the century home on Brunswick Avenue in the Kensington Market area of Toronto in 2006 for $718,000.

That seemed like a lot of money for a house, particularly when the wooden two storey extension at the rear was falling apart. They hired a contractor to tear it down and replace it with a new modern, soundly constructed two storey addition. So, what was the problem? Simple, they never obtained a building permit.

Sometimes, people go by the mantra “….it’s easier to obtain forgiveness… than ask for permission…”.  However, when it comes to governments and courts, that’s not always the case.

In this case, not everyone was happy with the new construction. It was bigger than the old wooden addition and blocked the sunlight. The resident’s association didn’t want this sort of cavalier approach to building to take place in their neighbourhood.

The Tsengs sought permission after the fact. Their application was turned down at every level, including the Building department of the City of Toronto, the Committee of Adjustment, the Ontario Municipal Board, the Divisional Court and the Ontario Court of Appeal.

Ultimately, they even went to the United Nations in Geneva, Switzerland with a human rights complaint.

The new addition cost about $80,000 to construct, or about 11% of the value of the property, and it should have added that much or more to the house.

However, you probably guessed it: all the appeals are over and the Tsengs have been ordered to demolish the addition. Their costs are not insignificant. Last year, they estimated that their legal costs exceeded $200,000. They also owe at least another $20,000 to the City. On top of that, there will be the cost of demolition. Conservatively, we have $220,000 in legals, $20,000 in costs to the City, $30,000 in demolition expenses, and the original $80,000 to build. That all adds up to $350,000 for an addition that isn’t there. And, of course, there is the loss of value associated with the removal of the old addition.

All in all, this is a mess!

Almost half the value of the property was simply thrown away. This isn’t the way a good investment in real estate is supposed to work.

What should have happened?

The original wooden addition likely represented a legal non-conforming use. The Tsengs only wanted an additional one meter in depth. They should have applied for a building permit and if denied, would have had the opportunity to go to the Committee of adjustment for a minor variance. Instead, the contractor demolished the older structure. That left them without the legal non-conforming component for their application.

Now, the “new” addition needed to comply with the current zoning and building standards. This meant that the new addition was 10 meters too deep, rather than just one. But, the old addition had now been long since removed. This legal escapade took over 6 years. And, as you can well imagine, you couldn’t sell this property to anyone in the meantime.

Their worst case scenario would have been to repair, rectify and improve their old wooden addition. From a construction perspective, it would have been cheaper to tear it down and rebuild, but from a legal perspective, it would have been permitted to stay.

If there are some lessons here:

1)     apply for a building permit,
2)     don’t demolish anything until you have the new permit in hand,
3)     get legal advice,
4)     don’t let your contractor give you legal advice “for free”, you know what that’s worth,
5)     don’t throw money at the legal system,
6)     invest in the property by having the funds expended add to the value.

And, of course, forget about that mantra: “….it’s easier to obtain forgiveness… than ask for permission…”.  

Get the building permit!

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.