Releasing Sale Proceeds After a Mortgage Claim Is Discharged

The Dispute

A mother had helped her daughter buy two homes, taking mortgages over both as security for the money she advanced. After the relationship broke down and a foreclosure dispute was settled, the daughter agreed to sell one home, and the mother gave up any claim to the proceeds. Just as the sale closed, the mother sued to undo that settlement, and the proceeds, nearly $900,000, sat frozen in trust while the daughter searched for somewhere to live.

The Parties’ Positions

The mother advanced a notice of civil claim to set aside the settlement agreement and its later amendment on the ground of duress, contending that she signed both under pressure to preserve her access to a grandchild. She resisted the daughter’s application to cancel the certificate of pending litigation and release the trust funds. She submitted that the claim disclosed a beneficial interest in the property being sold, resting that submission on a bare allegation that the daughter had been unjustly enriched by its sale.

The daughter answered that the claim disclosed no interest in land at all, framing her application on section 215 of the Land Title Act, which permits a certificate of pending litigation only where the claimant holds an interest in land. The only interest the mother had ever held against the property was the mortgage, and that mortgage had already been discharged under the settlement. The settlement’s amendment released her right to the sale proceeds, and a consent order dismissed the foreclosure the mortgage had secured. The evidence also showed that, despite suing to set the settlement aside for duress, the mother had separately used the same agreement’s power of attorney to transfer the second property into her own name. In the alternative, she adduced evidence that she and her son had been left without stable housing and unable to meet legal and living costs while the funds remained tied up.

The Court’s Decision

The Supreme Court of British Columbia held that the notice of civil claim did not disclose an interest in land, since the mortgage had been discharged and the foreclosure proceeding dismissed by consent. On that ground it cancelled the certificate and released the trust funds to the daughter outright, with no undertaking required from her. It indicated that, had the pleadings disclosed an interest in land, it would instead have cancelled the certificate under the alternative ground of hardship in section 256 of the Land Title Act. In that event, it would have required the daughter to undertake to pay the mother any damages later found owing on her claim. The daughter recovered costs of the application payable in any event of the cause, though the court declined to award special costs, finding the mother’s litigation misguided rather than reprehensible.

Key Lessons for Property Owners and Family Lenders

• Settle a family loan secured by a mortgage in a document that releases both the security and any claim to future sale proceeds, not one that discharges the mortgage alone. A release confined to the mortgage may leave room for a later argument that some other interest in the land survives it.
• Do not assume a certificate of pending litigation survives a claim to undo the very settlement that discharged its underlying security. A court may still find that the pleadings, as drafted, disclose no present interest in land, and cancel the certificate accordingly.
• Exercise or rely on benefits under a settlement carefully once litigation attacking that same settlement has begun. Relying on an agreement’s power of attorney while suing to set that same agreement aside can weaken the position of the party doing so, whatever the merits of the underlying claim.
• Put evidence of hardship before the court in the alternative, even where the primary argument is a technical one about the pleadings. Detailed evidence of housing instability and mounting costs can give the court an independent basis on which to grant the same relief if the primary ground fails.

The outcome of this application turned on the pleadings before the court, the terms of the settlement agreement and its amendment, and the evidence of hardship on this record. A similarly framed application may be decided differently.

ATAC LAW acts for parties to family property and mortgage disputes, including applications to release funds held in trust under the Land Title Act.

This matter was conducted by James Un, a senior associate lawyer at ATAC LAW, who acted for the daughter on the application.