How Do I Own House with Bad Credit?

On a number of occasions, I have seen the following scenario (or a slight variation of the scenario) “PLAY OUT”.

John Doe has bad credit but he is desirous of owning a property. He is aware that he will not be approved by the Bank and/or Mortgage Company if he applies for financing in his name. John has consulted a mortgage agent who has determined that he is able to “carry” the mortgage and the associated carrying costs of owning a property that fits his specifications.

John believes that his credit can be repaired within two years or so but he cannot wait that long as his fiancé is scheduled to move from overseas within six months to start their new life. Of course, John wants to impress his fiancé that he is living the Canadian “DREAM”.

John then commences the search for someone who has good credit and is willing to hold the property he intends to buy in their name for a while. John’s cousin, Jane Doe, has good credit and agrees to help John with his present dilemma.

John “buys” his “dream” home – a three-bedroom town-house in a nice neighbourhood. At the time of John’s “purchase” he enters into a Trust Agreement with Jane.

In a nutshell, the Trust Agreement stipulates that even though Jane is the registered owner of the town-house, John is the beneficial owner and further, that Jane is holding the property “in trust” for John. The Trust Agreement further confirms that save for the mortgage funds obtained from the Bank and/or Mortgage Company, the down-payment and all other closing costs for the purchase of the town-house was provided by

John. In addition, the Trust Agreement stipulates that John (and not Jane) is responsible for all mortgage payments and all related carrying costs of the town-house. More importantly, the Trust Agreement states that, at any given time John requests, Jane agrees to transfer title to the town-house to John.

John moves into the town-house in preparation for the arrival of his fiancé. Jane never moved into the town-house.

Unfortunately for John, the relationship with his fiancé deteriorated, his fiancé never moved from overseas and the parties went their separate ways.

Two years later, John is still single and realized he does not really need the larger space that a town-house provides – a one-bedroom condo could suffice.

John contacts Jane about his plan to“down-size”. Unknown to John, Jane has been monitoring the significant increase in property prices in John’s neighbourhood.

John was on the verge of a heart-attack when he received a phone call back from Jane wherein Jane advised him that the town-house belonged to her and she had no plans of selling. She even told John that it is her words against his as there were no witnesses to his “so-called” Trust Agreement.

THE BANK DOES NOT CARE …BUT THE COURTS DO

John is unsure of what to do. His initial inclination is to contact the Bank so as to inform the Bank that he is the actual “owner” of the town-house and not Jane.

Unfortunately for John, the Bank and/or Mortgage Company that provided mortgage financing to facilitate the purchase of the town-house is not a party to the Trust Agreement. Typically, the Bank and/or Mortgage Company will not recognize John’s interest in the property.

However, a Court of competent jurisdiction will recognize John’s interest in the property.

Infact, there are cases where the Courts have ordered that the title to the property in circumstances as described above, be transferred from the registered owner (in this case, Jane) to the beneficial owner (in this case, John).

The time-frame involved before the Court can Order such a transfer of title from the registered owner to the beneficial owner can take several months.

However, there are interim measures that John can take to protect his “interest” in the town-house. A Caution can be registered against title to the town-house – preferably attaching a copy of the Trust Agreement to the said Caution. However, such a Caution is typically only valid for sixty days.

John can also bring an Application for leave for the issuance of a Certificate of Pending Litigation (“CPL”) to be registered against title to the town-house, pending the Court’s resolution of the “title” issue between him and Jane.

With respect to both interim measures, either a Caution or CPL, appropriate legal advice from a lawyer is strongly recommended.

Action Steps

So, just like John, if you want to “own” a house but have bad credit, the following are some desirable action steps:

1) Have a Trust Agreement in place and ensure that, there are at least two witnesses to the Trust Agreement;

2) Have the above-noted witnesses swear Affida vits of Subscribing Witnesses;

3) Keep impeccable records. For instance, keep a record of the bank draft/certified cheque of the down-payment for the purchase transaction, a record of the bank draft/certified cheque relating to the closing funds, a record of the mortgage payments made to the registered owner’s bank account (with a memo stating that it is a mortgage payment as opposed to a rent payment) etc;

4) Have a Power of Attorney (“POA”) in place with the registered owner as grantor and the beneficial owner as grantee of the POA; and

5) Ensure that your name is noted on all accounts so as to be able to make enquiries e.g. utility companies, property tax account, etc.

By Olubunmi Ogunniyi, LL.B. (Hons),B.L., LL, M Barrister & Solicitor

E-mail: olu@ogunniyilawoffices.com