The B.C. land title registration system is often described as a "Torrens" system, after the system introduced in Australia in the 19th century by Sir Robert Torrens. The central components of a Torrens system are the establishment of a land title register and the provision of a statutory guarantee that a registered owner holds "indefeasible" title to land (i.e., a title that is not subject to challenge). The primary public benefit of this system is certainty of title. A person may rely on the title, as shown on the register, as conclusive evidence of good title, without any need to inquire into the historical "chain of title" in order to determine whether there are any title defects. This system provides comfort for purchasers and mortgagees that wish to transact with a person holding registered title to land.
The B.C. system of land registration, as embodied in the Land Title Act, is not a true Torrens system; rather, it provides only a qualified guarantee that a registered owner holds indefeasible title. The Land Title Act sets out several exceptions to indefeasible title, including an exception for fraud in which the registered owner has participated. The fraud exception enables a person deprived of land by fraud to recover title from the fraudster (provided the fraudster is still the registered owner of the land).
In Gill v. Bucholtz 2009 BCCA 137, released on April 6, 2009, the B.C. Court of Appeal had occasion to determine whether mortgages granted by a fraudster continue to charge land, even after the land is restored to the rightful owner.
Mr. Amritpal Gill was the registered owner of land. In November 2005, a fraudster (whose identity is still unknown) forged Mr. Gill’s signature on a transfer of the land to Ms. Gurjeet Gill, who was collaborating with the fraudster. Ms. Gill then granted a mortgage to a lender who advanced $40,000 to her when the mortgage was filed in the Land Title Office (concurrently with the forged transfer). About a month later, she negotiated a second mortgage with another lender but could not register it because Mr. Gill, having discovered the fraudulent dealings with his land, had filed a caveat against title. Unfortunately, the second lender had already advanced $55,000 to Ms. Gill. Neither lender knew that Ms. Gill had obtained her title by fraud. Both lenders had obtained confirmation of her identity before advancing funds but, because she was shown as registered owner on the forged transfer (and eventually title), no suspicions were raised.
Between the dates of registration of the first and second mortgages, the following provision was added to the Land Title Act as Section 25.1(1):
"Subject to this section, a person who purports to acquire land or an estate or interest in land by registration of a void instrument does not acquire any estate or interest in the land on registration of the instrument."
At trial, the B.C. Supreme Court held that, given the fraud exception to indefeasible title set out in Section 23(2)(i) of the Land Title Act, Mr. Gill was entitled to have his title restored. However, the court also held that, because the lenders had transacted, in good faith, on the state of the register, their mortgages were valid and continued to charge Mr. Gill’s title, even though he had not received any funds from either lender. Not surprisingly, Mr. Gill appealed.
The B.C. Court of Appeal noted that, although the Land Title Act confers indefeasible title upon registered owners of land (subject to the statutory exceptions), the holders of registered lesser interests (such as mortgages) do not obtain indefeasible interests. Mortgagees and other chargeholders are merely "deemed" to be entitled to the benefit of a charge, and the presumption of a valid charge may be rebutted. The court held that, because Ms. Gill became a registered owner by fraud and never actually acquired a valid interest in the land, she had no interest to grant to the lenders. Accordingly, the two mortgages were void (both under Section 25.1(1) and at common law) and the lenders were left without any security for the money advanced to Ms. Gill.
The Gill decision is significant because the court determined that the intention of the amendments to the Land Title Act was to place the risk of fraud squarely on the shoulders of lenders and other chargeholders and not on the public (as the funders of the Assurance Fund, which provides compensation to persons deprived by fraud of land or an interest in land). The decision makes it especially important for lenders and chargeholders to ensure that the identity of the registered owner is ascertained and that the registered owner’s title to the land was not obtained by fraud or forgery. Precisely how they go about doing so will, no doubt, be a subject for discussion between lenders and their lawyers.