Blog by Kevin Wong

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BC Court Rules Against Tenant In Foreclosed Home

Faced with foreclosure recently, a British Columbia property owner vacated his property but then did something more unusual – rented out the property to a tenant as the bank took over ownership. While successful at first, the strategy eventually panned out when the bank sold the property and the tenant refused to vacate.

It led to the February ruling by the British Columbia Supreme Court in Kelowna, ultimately evicting the tenant, according to a recent summary by the British Columbia Real Estate Association (BCREA) in an issue of its Legally Speaking publication. The details of the case, First National Financial GP Corp v. Sirotka, could serve as a cautionary tale for lenders, purchasers of foreclosed properties, and tenants alike.

The BCREA summary was written by Mike Managan, an experienced trial lawyer. He noted the case took shape in 2009 when the lender began foreclosure proceedings. On Dec. 1, the owners rented the property out on a month-to-month basis.
Just a week later, the court granted judgement to the lender to take back the home, but the tenant remained without knowledge of this. In 2010, the lender was able to start listing the property and the court approved a sale on Nov. 17 that year. The new owner asked the court for an order of possession, requiring the tenant to vacate the property. The tenant argued she had not been notified of the foreclosure in signing the lease.
When the tenant refused to leave, it took a BC Supreme Court ruling to eventually force her out.

“The registered owner of land can only grant an interest in land that she has to give,” wrote Master Barbara Young of the BC Supreme Court. “In this case, that interest was subject to the terms of a mortgage which granted the bank a right of possession of the land if certain events occurred.”

Young did allow the tenant another three weeks after the ruling to vacate, as well as credit for three months of rent she had not yet paid. The new owners were not compensated in Young’s ruling as they were not parties to the action.
The judge did consider section 94 of the Residential Tenancy Act, which requires the lender to add the tenant as a part to make any court order enforceable against the tenant in the foreclosure. But Managan pointed out that section 94 was not enough in this case to prevent the sale from proceeding.

“Historically, where a borrower rents the property to a residential tenant during foreclosure proceedings, but fails to add the tenant as a party, the court will not use section 94 as a shield to protect that tenant against the foreclosure,” he said.




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