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When Can a Creditor Seize Property Held in Joint Tenancy?

Earlier in the year, an interesting decision came out of the Ontario Court of Appeal which concerned the rights of a creditor to seize the property of a non-debtor joint tenant. This was examined in Senthillmohan v. Senthillmohan, 2023 ONCA 280.[1]

Facts

In Senthillmohan, the parties were Sockalingam Senthillmohan (the “husband”), Subhathini Senthillmohan (the “wife”), and 2401242 Ontario Inc. (the “Creditor”). The husband and wife were married but are now separated and together they owned a matrimonial home in joint tenancy.

In January 2020, the wife commenced an application seeking a division of the parties’ net family property and a sale of the matrimonial home. In January 2021, the court granted an order directing for the sale of the home and for the net proceeds of sale to be held in trust pending a separation agreement between the husband and wife.[2]

In September 2021, the Creditor obtained a default judgment against the husband because of a previous civil action and a writ was filed on the home. In October 2021, the husband and wife sold the matrimonial home and the creditor consented to temporarily lifting the writ to facilitate the sale.[3]

In November 2021, the wife brought a motion seeking to sever joint tenancy to the home. This motion was granted, and the court issued an order (the “November 2021 Order”) that title to the home be held by the husband and wife as tenants in common. The order was silent on the effective date of the severance and did not address the default judgment against the husband.[4]

The sale of the home was completed in February 2022. Following the sale, the wife brought a motion to release her 50% interest in the proceeds of sale which were held in trust. The Creditor sought to enforce the writ against her interest in the proceeds, despite not being a debtor.[5]

The Creditor submitted that both the husband and wife were joint tenants at the time the default judgment was obtained, and the writ filed. Therefore, the Creditor had priority over the wife’s interest in the proceeds of sale. The motion judge rejected this argument and found that joint tenancy was severed retroactively by the time the Creditor obtained default judgment, through the November 2021 Order.[6]

The Law

On appeal the question for the court was, can the Creditor seize the interest of the wife, despite the fact the default judgement was not obtained against her? The Court of Appeal decided in the negative; the Creditor was not entitled to the wife’s interest in the proceeds of sale.

Of central importance in the court’s decision was section 9(1) of the Execution Act, R.S.O. 1990, c E.24, which provides:

9(1) The sheriff to whom a writ of execution against lands is delivered for execution may seize and sell thereunder the lands of the execution debtor, including any lands whereof any other person is seized or possessed in trust for the execution debtor and including any interest of the execution debtor in lands held in joint tenancy. (emphasis added)

The act of seizure and execution on debts pursuant to the Execution Act only allows for execution against the debtor’s interest in the land. When steps are taken to seize property, joint tenancy is severed and as a result a creditor has no claim to the whole property. The same principle applies when a creditor seeks a debtor’s interest in property held as tenants in common.[7]

Moreover, the court highlighted section 10(6) of the Execution Act which states that a writ “binds the lands against which it is issued”[8]. When read in conjunction with section 9(1) and the right of survivorship, the court interpreted this to mean that a writ can affect only a seizure of the debtor’s interest in land held in joint tenancy.[9]

The right of survivorship provides that when property is owned jointly in joint tenancy and one owner dies, their interest automatically flows to the other owners. This is distinguishable from tenancy in common, whereby two or more persons may hold property jointly, but each have a distinct share. The right of survivorship does not apply in this instance and on the death of one of the owners, their share does not automatically flow to the other owners.

Comment

The legal issue posed in Senthillmohan is somewhat unique. In coming to their decision, the Ontario Court of Appeal noted how little jurisprudence exists to guide them. So, Senthillmohan, provides helpful guidance on the rights of creditors and joint tenants.

It is important to note that the rules that govern creditor rights in respect of seizure and execution against non-debtors differ across Canadian provinces. For instance, in Manitoba The Real Property Act, C.C.S.M c. R30, prioritises the payment of creditors over joint tenants in a default judgment scenario.[10] Thus, if Senthillmohan, were decided in Manitoba, the Creditor’s writ would need to be paid out before any remaining surplus is paid to the wife.

[1] Senthillmohan v. Senthillmohan, 2023 ONCA 280 (“Senthillmohan”)

[2] Senthillmohan at para 1.

[3] Senthillmohan at para 2.

[4] Senthillmohan at para 4.

[5] Senthillmohan at para 5.

[6] Senthillmohan at para 6.

[7] Senthillmohan at para 14.

[8] Section 10(6) of the Execution Act, 1990

[9] Senthillmohan at para 14; citing Power v. Grace [1932] O.R. 357 (Ont. C.A)

[10] Section 136(3) of The Real Property Act, C.C.S.M, c. R30.

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