Bearing the Consequences of Taking Title in Trust

A Review of Weise v Weise, 2023 and Bare Trust Agreements

By Ashley Hizo and Slonee Malhotra

When buyers need assistance in qualifying for a mortgage, they often seek to include the addition of their parents or other family members as a co-borrower, consequently adding them to title. One way to structure adding an additional party to title is to create a bare trust agreement. A bare trust is a trust agreement where the trustee has legal ownership of the property but has no duties, obligations and responsibilities with respect to the property as trustee other than to transfer, under the absolute control and direction of the property’s beneficiaries. Acting as a bare trustee, a parent or family member has no beneficial interest towards the property and holds title to the property in name only.

A bare trust agreement however, does not absolve the co-borrower’s liability. For instance, if the beneficiary of the bare trust fails to make a mortgage payment on the property, the co-borrower operating as a bare trustee is equally liable.

The Applicant in Weise v Weise, 2023 recently brought to the Ontario Superior Court of Justice this very issue. The parties in this case had entered into a joint tenancy agreement for a property whereby the Applicant’s brother and his wife (the Respondent) sought to buy a property that they did not qualify for a mortgage by themselves. As a result, the Applicant agreed to go on title for the sole purpose of assisting her brother and the Respondent in the purchase and mortgage of said property.

In a separate agreement, the Applicant was named as a bare trustee for this property, with the Respondent named as the beneficial owner of the land. Several years later, the Respondent defaulted on a number of mortgage payments and the bank consequentially took the outstanding mortgage payments out of the Applicant’s account. The Respondent did pay the Applicant back for these payments, but to ensure that the bank would no longer pursue outstanding payments from her, the Applicant applied for an order to sell the property under the Partition Act.

The Partition Act allows a land owner with a possessory right to petition to the Court to force the sale of his or her land. The Court in Weise however, dismissed the application and refused to issue such an order.

The Court found that the parties executed a trust agreement on the basis that the applicant, despite being a joint tenant, was simply a bare trustee with no independent powers, discretion or responsibilities. The trust agreement further provided that the Applicant would explicitly have no entitlement to possession, immediate or otherwise and/or any proceeds of disposition with respect to the property. From an interpretation of the clauses in the trust agreement as a whole, the Court concluded that the applicant was not entitled to compel partition and/or sale of the property.

Put plainly, absent a possessory right the applicant was not entitled to force the sale of her land. Had the trust agreement included a term to permit the Applicant to seek partition and/or sale of the Property, the Court may have been more inclined to offer such relief.

The Respondent had since settled her debts with the Applicant in regard to the outstanding mortgage payments. However, the Court did find that the Applicant would be entitled to any future relief or indemnification should the Respondent default on any subsequent mortgage payments. In justification of this, the Court again looked to the trust agreement which stated that it was the ultimate responsibility of the beneficial owner (the Respondent) to be liable for the debts and obligations of the bare trustee.

For questions related to this article or legal assistance regarding a real estate matter, please reach out to one of our experienced real estate lawyers at SorbaraLAW.