Land Titles System and Title Fraud

Land Titles System and Title Fraud

By Brian Madigan LL.B.

(Ontario Real Estate Source)



The Land Titles system applies to most properties registered in Ontario.

The system contains three basic principles:

1) mirror principle,

2) curtain principle,

3) insurance principle.

The state of the title is it. Whatever the Land Titles Registrar says is the fact. That is accepted. There is no need to question it. That is the mirror principle. The reflection in the mirror is all there is.

Further, there's no need for questions or concerns. There is no need to double check. There is no need to look behind the title. There is no need to lift the curtain.

The third principle is straightforward: insurance. If there is a legitimate claim, it will be paid out of the insurance fund.

In looking at title fraud, there are often several parties, a homeowner, a fraudster, and a bank. There are of course several different ways of perpetrating a fraud on the victims. Basically, the fraudster needs to run off with the money, so that is where the bank comes in. There's really no point stealing the house and then having the courts take it back. So, the trick in most cases is to get someone to place a mortgage on the property and disappear with the proceeds.


The Ontario courts have held that the doctrine of deferred indefeasibility applies to the Land Titles system. Here is an explanation offered by Madam Justice Molloy:

"Under an immediate indefeasibility system, as soon as a document obtained by fraud is registered on title it becomes enforceable and indefeasible (other than against the fraudster).

However, the deferred indefeasibility principle leaves some risk with the immediate parties to the fraudulent transaction, such that the fraudulent document only becomes indefeasible when it is transferred to a bona fide purchaser for value without notice of the fraud.

On the theory of deferred indefeasability, there are three classes of parties:

1) the original owner (who has no knowledge or involvement in the fraud);

2) the intermediate owner (who dealt with the fraudster); and

3) the deferred owner (who subsequently acquired the property from the intermediate owner without knowing anything about the fraud).


It is central to this theory that as between these three classes of owners, it is only the intermediate owner who has any opportunity to detect or avoid the fraud.

As a question of policy, it makes more sense to place the burden on the party which, although innocent of wrongdoing, had some opportunity to prevent the fraud."

Under the Land Titles system, there is a risk associated with the acquisition of property by an innocent purchaser for value. Once this person is the owner and their name appears on the register, then, any mortgage they give is a good mortgage and any sale they make is a good sale.

Naturally, that still leaves the original owner at some risk. These types of cases are still making their way through the judicial system. But, in the final analysis, it is better to have a few homeowners suffer the loss, than bring the entire system into disrepute.Land Titles would then just be the same as the old registry system with all its related risks.


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 Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com