July 16, 2005
Get advice about down payment gifts
Parents should consult lawyer before providing house loan
Demand mortgage may not offer adequate future protection
When young couples buy a home for the first time, it's not uncommon for the
parents of one partner or the other to provide financial assistance. It may be
offered either as a down payment, or if finances permit, for much of the
Many times in my own practice, I have seen certified cheques for some, or all,
of the purchase price signed by a parent of the purchaser or one of two young
When I ask, I'm usually told that the money is either a gift, a forgivable loan,
or a mortgage either to be registered or unregistered against the property.
If I'm aware that the source of the funds is a parent, I often insist that he or
she receive independent legal advice on whether the purchase, money, gift or
loan should be documented in any way, and if so, whether it should be registered
on title as a mortgage in favour of the parent.
Depending on the circumstances, a parent might say that the money is a gift and
there is no requirement or expectation that it be repaid. If the money is a
loan, the parent will, in some cases, be advised that it should be secured on
title as a mortgage.
Sometimes, a mortgage from a parent will be signed and registered so that the
money will be treated as an asset of the parent's estate on death, resulting in
an equitable division with other siblings who may not have received similar
In other cases, a parent's mortgage will be registered on title to protect the
money in the event the marriage goes sour and there is a dispute between the
spouses over the equity in the house. If the marriage survives, the money will
eventually be forgiven or written off in the parent's will.
Until recently, the typical way of protecting a parent's money in similar cases
was for the recipient couple to sign a mortgage in favour of the parent for the
sum advanced, with or without interest, and repayable "on demand" in other
words, whenever the parent wants the money back.
The use of a demand mortgage or a mortgage without payments in parent-child
situations will probably change in the wake of a decision of Justice Sherrill
Rogers in Newmarket Family Court in March.
In 1988, Purissima and Tomasso Cioccio purchased a home and signed a mortgage in
favour of the parents of the husband, Angelo and Antonio Cioccio. The mortgage
was written and signed as a conventional five-year mortgage with monthly
payments. After the house purchase, the parents never asked for payments and no
payments were ever made on the loan. In fact, it was not registered on title
until February 2004, about two months after Purissima and Tomasso separated.
Purissima then took her husband to court, claiming among other things, that the
advance of monies from her in-laws was a gift and the mortgage was
unenforceable. Tomasso's position was that the money was a conventional mortgage
and would have to be repaid to his parents if the house was ever sold.
The legal question before the court was the interpretation of the Real Property
Limitations Act. In short, the legislation says that a mortgage becomes void if
no payments have been made or demanded in a 10-year period, and if the borrowers
have not acknowledged owing the debt during that time.
But when does the 10-year period start running from the day the first payment
fell due in 1988, or the day in 2004 when the parents made a formal demand for
return of their money?
Dana Cohen, lawyer for the wife, argued that the 10-year period ran out in 1998
and the mortgage was no longer enforceable in 2005. Milton Bernstein, counsel
for the husband, said the 10-year period only starts when a demand is made.
Ultimately, Justice Rogers decided that the mortgage was not a demand mortgage,
but a conventional mortgage calling for regular payments and containing a fixed
maturity date. The court ruled that the mortgage began in 1988 and ran out in
1998. As a result, it was no longer enforceable and was ordered to be discharged
from title to the house.
Another Ontario case in 2004 (Alter vs. Csontos) dealt with a similar fact
situation on a home in Forest Hill. Justice Susan Greer decided that the
limitation period on a demand mortgage started running when the mortgage was
signed and not when the demand for money was made at some later date.
In the aftermath of these two decisions, it becomes even more important for
parents to receive independent legal advice when lending or gifting money for a
house purchase by their children.
In order to prevent the statute of limitations from running out, it's a good
idea for payments to be made from time to time.
An annual payment of only $1, preferably by cheque, might well be the difference
between a mortgage being enforceable or invalid after the 10-year period has
Bob Aaron is a Toronto real estate lawyer. He can be reached by email
at email@example.com, phone 416-364-9366 or fax
416-364-3818. Visit the column archives at
Bob Aaron is a Toronto real estate lawyer. He can be reached by email at firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818.
Visit the Toronto Star column archives at http://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.