3.77: Subsequent encumbrancers not parties in foreclosure action

Case Summary

This was an Appeal of a Master’s Decision. The Appellant was the second encumbrancer on the Defendant’s property title. The first encumbrancer had already proceeded through a Foreclosure Action and had been paid out for the amounts and related costs under a mortgage. The Appellant brought an Application before the Master, claiming an interest in the remaining funds from the sale of the property, which had been paid into Court. The Defendant did not respond to that Application, but a subsequent encumbrancer on title (the “Respondent”) opposed the Application for payout on the basis that the Appellant was statute barred from bringing a Claim pursuant to the Limitations Act, RSA 2000, c L-12.

One of the central questions in the Appeal was whether the Respondent, who was not a Defendant in the Foreclosure Proceeding, could invoke the protection afforded in the Limitations Act. Rule 3.77 does not permit a subsequent encumbrancer to be a party to an Action unless possession is claimed from the subsequent encumbrancer. Manderscheid J. indicated that, from both a policy and interpretation perspective, it would be counter-productive for Rule 3.77 to prescribe on one hand, that a Plaintiff in a Foreclosure Action must not make any subsequent encumbrancer a party to the claim (save certain special circumstance) and, in another breath, for the subsequent encumbrancer to turn around and commence a separate Foreclosure Action in respect of the same mortgaged lands as a Plaintiff against the same Defendant debtor in the first Foreclosure Action. For this reason and others, the Respondent’s limitation argument failed.

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