What are a Spouse’s Rights upon Foreclosure?
When a home falls into foreclosure the property is sold to satisfy the owner’s creditors. The sale proceeds first go to the mortgagee, and then to other creditors in order of priority. Priority is generally determined based on various factors such as the type of creditor and the date of registration of the debt. In general, a judgment creditor cannot claim an interest in property beyond that held by the judgment debtor. The Court Order Enforcement Act (CEA) confirms this common law principle, and clarifies in s. 86(3)(a) that a judgment creditor’s interest is subject to any equitable interests that may have existed prior to the registration of the judgment.
In a recent decision, Chichak v Chichak, 2021 BCCA 286 the court had to determine priority between a judgment creditor with a registered judgment, and the unregistered equitable interest of a spouse.
In this case, Mr. Chichak was the sole registered owner of the property subject to a mortgage. Ms. Chichak had transferred her interest in title to him several years earlier. In 2014, Cardero Capital and First West Credit Union both obtained judgments against Mr. Chichak and registered them against the title of the property. The property was foreclosed and sold in 2016, and $312,830.83 of the sale proceeds remained after satisfying the debts owed to the highest ranking creditors. Cardero and First West applied to the courts for access to the remaining proceeds. At the same time, Ms. Chichak applied to have a 50% equitable interest in the property declared in her favour and argued that this interest should outrank the judgment creditors in priority. The chambers judge found in favour of Cardero and First West by applying the statutory presumption of indefeasibility (meaning the only valid interests in reference to the land are those that are registered against the title) and by looking at case law where transfers of title between family members had been considered gifts which extinguished the equitable interests of the giftor.
On appeal, the Court ruled that the chambers judge had mistakenly applied the principal of indefeasibility, stating that while a genuine purchaser for value would take priority over an unregistered equitable interest, a judgment creditor is not a genuine purchaser and therefore does not have the same priority. To allow the judgment creditors to take priority over the equitable interest would be to grant an interest in the property beyond what was held by the debtor, which would be contrary to the CEA. The Court allowed the appeal and sent the case back to the Supreme Court of B.C for redetermination.