Close-Knit Family Home Ownership - A Cautionary Tale
The current housing market of Canada's largest cities makes home ownership an unrealistic dream for many people. One of the ways of making the dream a reality is for family members to contribute and share expenses. This model is not new having been implements by hundreds of families immigrated to North America. However, a recent case, Andrade v Andrade, illustrates that a family who decides to make purchasing a house a family affair should take steps to ensure that who owns the house is clear.
The mother, Luisa immigrated to Canada with one of her seven children in 1969. She was followed shortly thereafter by the remaining family members. In order to establish themselves, all of the children left school before the completion of high school and entered the workforce. Upon doing so, each child contributed money to the mother, who was not employed outside the home.
In 1974, Luisa decided to purchase a home. In order to finance the purchase, she borrowed $1,000 for a down payment. The remainder of the purchase price was secured by two mortgages against the home. Since Luisa was not working outside of the home, two of her eldest children took title to the property and signed the mortgages.
The structure of adult children contributing to the family unit continued. Each child who left school would provide part of his or her income to Luisa until the child left the home and became fully independent.
In time, the two original siblings who held title to the home transferred title to two younger siblings, one of whom was Joseph. The financial structure of contributions being made to Luisa continued.
Joseph died in 2007 and his widow transferred his "ownership" to the property to herself. She then sought a court declaration that she, through his ownership, was beneficial owner to the property. Luisa counterclaimed for a similar declaration that she was the owner of the house.
As one expects in such matters, subsequent conduct complicated the issue of ownership. The house had two apartments upstairs which were rented out. Luisa advertised for the renters, negotiated and collected rent. However, the income from rent as well as the costs associated with repairs and maintenance were claimed as income and expenses by the two siblings who were on title. Luisa's income tax reflected that she was claiming a rent expense.
At trial the judge sided with the widowed daughter-in-law and held that the two siblings on title were the owners. The decision was based primarily on the fact that Luisa lacked income to make the down payment and mortgage payments. The court awarded ownership to the daughter-in-law together with over $237,000 in costs. (Spoiler alert - this is a significant part of the cautionary tale).
The Court of Appeal overturned the trial decision on the basis that the trial judge confused Luisa's income with the source of the income. While true that Luisa had not worked outside the home, she did have resources, namely that her children gave her gifts of money to be used in whatever way she wished. Those monetary payments were not given with strings attached. In other words, they were legally gifts. When Luisa used them to pay the mortgage, the house became hers.
The Court of Appeal addressed the issue of whether the income tax records affected ownership. Typically, when one structures a transaction to avoid taxes that would be payable if the monies were a gift is then prevented from later claimed the monies were a gift. In this case, however, there was no evidence that the home was put in the children's names to avoid taxes. Rather, the children were on title because Luisa did not qualify for a mortgage.
It is easy to look at this case and say "all is well that ends well". Ownership ended up with Luisa rather than with the daughter-in-law. That said, one must recall the $237,000 that was awarded in costs. Cost awards do not pay out 100 cents on the dollar so this award represents only a portion of the real monetary costs involved. A successful litigant will never be made completely whole with a cost award.
The Lesson: Even with the most trustworthy of family members, litigation can occur. Circumstances change over time, family members marry, divorce and disputes occur. It is crucial to document all understandings of a financial nature. Had this family simply written out an agreement stating that the children were on title to the mother's home much time, energy and money could have been saved. A few dollars spent with a lawyer would have saved the family significantly.
If you have a dispute as to who owns property, please contact our office as to your rights and obligations.
Andrade v Andrade, 2016 ONCA 368 http://www.canlii.org/en/on/onca/doc/2016/2016onca368/2016onca368.pdf
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