# sticky situation...



## SPQR1927 (Jun 7, 2019)

Just a general question regarding promissory note in the province of Ontario. Long story short, my brother got into a sticky situation and needed some money. Essentially, I had to bail him out via a promissory note (wasn't through lawyer, just email and scanner) whereby I was the sole borrower. Stupid me, I know. Anyways there is a section on promissory note stating 

"in the event that the principal or the interest or any portion thereof remains outstanding after the maturity date, the lender has the right to register a blanket mortgage on the borrower's house located at 123 Any St (rental property).... ". 

This was a rental property which I have sold 4 months ago. Furthermore, my wife and I are selling out matrimonial home whereby she is the only name on title and as sole mortgagor. I signed as consenting spouse and the payments are coming out of our joint account. There is no mention of this particular property address on the promissory note. My question is, can this lender put a lien on our matrimonial home that's under my spouses name only?


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## twa2w (Mar 5, 2016)

Yes potentially, but you would know well in advance because the lender would have to successfully sue you first.
Many years ago, business owners would put their house in their spouses name to protect that asset from creditors. Since the original family law reform act many years ago, this was successfully challenged and creditors have successfully liened matrimonial homes even if solely in spouses name. Although they have to go through a judgement process first. Successfully forcing sale of the home to collect on the judgement is another matter.
I am assuming you are in Ontario by the way. If not, my answer may change.


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## SPQR1927 (Jun 7, 2019)

twa2w said:


> Yes potentially, but you would know well in advance because the lender would have to successfully sue you first.
> Many years ago, business owners would put their house in their spouses name to protect that asset from creditors. Since the original family law reform act many years ago, this was successfully challenged and creditors have successfully liened matrimonial homes even if solely in spouses name. Although they have to go through a judgement process first. Successfully forcing sale of the home to collect on the judgement is another matter.
> I am assuming you are in Ontario by the way. If not, my answer may change.



how long would that process take. The process for the lender going through a judgement? I am in Ontario


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## Longtimeago (Aug 8, 2018)

What is the purpose of your question? Do you not intend to have paid off the amount owed by the maturity date? If you pay off as 'promised' all of this is irrelevant.


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## Mukhang pera (Feb 26, 2016)

SPQR1927 said:


> "in the event that the principal or the interest or any portion thereof remains outstanding after the maturity date, the lender has the right to register a blanket mortgage on the borrower's house located at 123 Any St (rental property).... ".
> 
> My question is, can this lender put a lien on our matrimonial home that's under my spouses name only?


As twa2w suggests, yes, the lender can file a "lien" against title, but only in the form of a judgment obtained following a successful lawsuit. As written, the note contains a term that is pure nonsense. Without seeing the document in its entirety, we cannot know if the balance of the document is of equally doubtful enforceability.

A term in a promissory note conveying a right to register a "blanket mortgage" (whatever that might be) I would say is a thing writ in water. A mortgage is a specific form of contract. There must be all the trappings of a contract and, fundamentally, an agreement on essential terms. Interest rate would be an obvious one.

In fact, I would go so far as to suggest that unless the promissory note contains a severability clause, the whole shebang just might be unenforceable, _inter alia_, on the basis that such an overreaching contract offends public policy.

When I say "severability clause", I refer to something we all see every day, that looks like this:

_If any provision of this Agreement for any reason is declared invalid, such declaration shall not affect the validity of any remaining portion of the Agreement, which remaining portion shall remain in full force and effect as if this Agreement had been executed with the invalid portion thereof eliminated and it is hereby declared the intention of the parties that they would have executed the remaining portions of this Agreement without including therein any such part, parts or portion which may, for any reason, be hereafter declared invalid.
_

There is, of course, that the court would order severance, lack of severability clause notwithstanding. I would be embarrassed to show up in court suing on such a covenant.

So, for this creditor to get to the stage of filing a "lien" on your matrimonial home, said creditor would have to commence an action against you. I have no idea how much money is at stake, and quantum would dictate in what could the action would have to proceed. But you would have the right to file a defence (and you had bloody well better) and getting to trial would take some time. If nothing else, I would expect the home, said now to be for sale, will be long gone before the creditor could obtain and register judgment, in the dubious event of success.

I must confess to some shock and dismay at twa2w's revelation that, in Ontario, the manner in which a family home is registered can provide one spouse no protection against the creditors of the other. 



twa2w said:


> Since the original family law reform act many years ago, this was successfully challenged and creditors have successfully liened matrimonial homes even if solely in spouses name.


I take it the law reform measures referred to makes the liability of spouses for debt a joint and several obligation. I am happy that BC has not seen to follow such an odious course.

As a footnote, for an entertaining discussion of severability clauses (at least in the employment law context), see:

_ACS Public Sector Solutions Inc._ v. _Courthouse Technologies Ltd._, 2005 BCCA 605

https://www.courts.gov.bc.ca/Jdb-txt/CA/05/06/2005BCCA0605.htm


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## Mukhang pera (Feb 26, 2016)

Longtimeago said:


> What is the purpose of your question? Do you not intend to have paid off the amount owed by the maturity date? If you pay off as 'promised' all of this is irrelevant.


Maybe just me, but I thought the purpose was obvious. If the debt has been retired, or will be, in accordance with the tenor of the note, the question would be moot. But, even then, it's an interesting hypothetical the OP has advanced, perhaps just out of academic interest.


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## Mukhang pera (Feb 26, 2016)

SPQR1927 said:


> how long would that process take. The process for the lender going through a judgement? I am in Ontario


I did not really address this. As I already mentioned, the dollar amount at stake will dictate the court in which the creditor will have to proceed. In BC, $25,000 and under goes to the small claims division of the Provincial Court. Over that, Supreme Court.

Here, even in Provincial Court, the process is not quick. First, pleadings get drawn and served. Then, depending on quantum and court location (Vancouver has a different process than Prince Rupert), there will be mandatory mediation, settlement conferences and on and on before you can get close to a trial. If desired, you can be obstructionist and drag that out for months.

In Supreme Court you can _really_ take your time. After the close of pleadings (which will take a couple of months even if done expeditiously), there will be a discovery of documents phase, then examinations for discovery, then booking a trial date etc. You can really drag things out if you get creative with interlocutory motions and adjournment applications. Two years to get to trial will be nothing. Do you think you can drag the matrimonial home sale across the finish line in that time? I would hope so.

My guess is that in Ontario lawsuits move at an equally glacial pace. So relax. Of course, if you are paying a lawyer to run interference for you, it can add up. Maybe worth it if the note is for a million bucks. Otherwise, do a bit of homework and represent yourself. Self-represented litigants are generally forgiven for dilatoriness that would not be acceptable for counsel.


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## twa2w (Mar 5, 2016)

No, the reform act did not make liability for a debt a joint obligation. It has been a while but IIRC the original family law reform act detailed the division of property under a separation or divorce. The matrimonial home was set out as a 50/50 divsion and the rest of the matrimonial assets were also 50/50 but took into account assets brought into a marriage so it was growth in assets since the marriage that were divided. 
However, other than short term or sham marriages, the matrimonial home was always 50/50 even if owned outright by one spouse at time of marriage.
The bank argued that even if house was in only one spouses name, 1/2 that asset would belong to the other spouse in any marriage breakdown. I believe there were several appeals but ultimately the bank succeeded.

There have been several revisions to the act in Ontario since so not sure of what the case would be today. But the advice provided by lawyers and accountants to business owners changed after that.

I still recall this case since in made news in financial circles. Early 80,s if I recall.

Not sure if the OP dealt with a bank or a private lender. Banks will sometimes have a borrower sign an agreement, separate from the note itself, saying that the borrower agrees to pledge certain assets if certain conditions are not met by a certain date.
Certainly this is the case on interim financing or bridge loans with real estate. If the sale of the second property falls through, the bank will usually ask the borrower to honor the commitment to provide a mortgage.


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## Mukhang pera (Feb 26, 2016)

Interesting twa2w.

I graduated from law school in Ontario and then moved back to BC, and that was a few years ago. Things have changed.

In BC, the Family Relations Act governed for a long time and, more recently, the Family Law Act. Then there is some exclusive federal Divorce Act jurisdiction with some overlap regarding child and spousal support etc.

In BC, the law now presumes equality when it comes to property division. However, there is no magic to any of it, including the family home. Here, if one spouse brings the home into the marriage, the home is the "excluded property" of that spouse, but any increase in its value will be subject to equal division on marriage breakdown. Moreover, spouses have the power to make their own contractual arrangements in the form of pre-nuptial agreements, marriage agreements, separation agreements & c. However, any of those can be set aside by the court, in whole or in part, on grounds, inter alia, of _unfairness_. 

Contrary to popular belief, in BC, if a poor person marries a rich one and moves into their $10 million West Vancouver house and decides one day later to divorce, the poor person does not, as of right, walk away with $5 million. No 50/50 rule applies. Perhaps that popular belief is imported from Ontario where, it would seem, the law supports that kind of injustice. In a socialist regime, maybe that is simply seen as an appropriate redistribution of wealth. Do you know, in Ontario, can one avoid that result by living common law? Or does the legislation place common law and married couples on an equal footing?

Anyway, back to the promissory note issue, in BC, if I sign a promissory note purporting to give a lender a right to mortgage my home, if title is in my wife's name, that lender will be SOL. In fact, as I said, even if title is in my name alone, the lender will still be SOL. How would the lender obtain my signature on a mortgage against my will? Also, as I said, who will write the mortgage terms? Can the lender create a demand mortgage at 20% interest and register and enforce it against me? Do I not have to agree to any of it? So the clause becomes kind of meaningless and just plain daft when subjected to scrutiny.

As for signing an agreement to pledge certain assets if certain conditions are not met, at least in BC, such a covenant would be unenforceable unless very carefully crafted. The particular assets and the terms of the pledge would have to be clearly set out in advance. To be worthwhile, there would have to be a term that I would not sell or otherwise pledge, hypothecate or encumber the assets. Such a covenant in itself might be seen by a court as unenforceable, for lack of certainty and, as well, as operating as what, in mortgage law is known as a "clog on the equity of redemption". Most importantly, if the matrimonial home is registered to my wife, how can I promise to mortgage it? Do I undertake to hold a gun to her head to compel her to sign the mortgage contract?

FWIW, a recent BC case giving some insight into how division of matrimonial property is handled here would be:

_R. (M.J._) v. _R. (M.I.)_, 2019 BCSC 210

https://www.bccourts.ca/jdb-txt/sc/19/02/2019BCSC0210.htm

In that case, the husband brought the home into the 6-year marriage. He was allowed to retain all of the modest equity in the home on dissolution of the marriage.


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## twa2w (Mar 5, 2016)

I have not worked in Ontario for some time. In fact I have not worked at all in some time. I believe Ontario allow judges some leeway where one spouse brings ownership of a home to a marriage and the marriage is short lived.
There have been cases iirc where 2 older people each owned a house and got married. They moved into one spouses house and rented out the other. The initial flaw was the house occupied by the couple was now considered the matrimonial home and would be divided 50/50. But the other house, only the growth in value would be divided.
I think the original intent of the law was to fix the issue where a non working spouse owned no property. The working spouse(usually the man) owned the house in his name(even if acquired after marriage)and often the investments. If they divorced, even after a long marriage, the wife might get nothing. Of course the new law led to unintended consequences. 
I agree you cannot pledge an asset that is not yours. In the OP,S case I believe he had a rental property he agreed to encumber if certain conditions were not met. It appears he had title to this property and then sold it without informing the bank.
I canmot speak to how enforceable such a promise is without seeing the document. I know the banks have clients sign such agreements but not sure how enforceable they are if a client refuses to honor his pledge to provide security. I only saw it happen once and it proceeded to court but I never learned what happened. The security in any event would simply be collateral to the terms of the original prommisory note so I presume terms such as rate would be predetermined.
Of course as we both know, the devil is in the details and can be very case specific.


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## Mukhang pera (Feb 26, 2016)

twa2w said:


> I
> Of course as we both know, the devil is in the details and can be very case specific.


Y'er right on that!

In any event, I suspect the OP has left the building and will not be returning to this thread.


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## OptsyEagle (Nov 29, 2009)

So what is the basic question. How to get out of doing what you promised to do. The easiest way to prevent a lien on your house or any other problem in your life is to pay back the money you promised to pay back. I believe you even have a note that should remind you of that promise.


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