Civil fraud litigation often moves quickly from the question of what happened to the question of what can still be recovered. When funds are gone, assets have been moved, or property has changed hands, plaintiffs may seek interim remedies to preserve value while the underlying lawsuit proceeds.
A recent Ontario Superior Court decision, Crepulja et al v. Masterson et al, involved investors, alleged participation in a real estate Ponzi scheme, and multiple property transfers. The case illustrates how courts may approach Certificates of Pending Litigation, commonly called CPLs, in the context of alleged fraudulent conveyances. The decision also highlights the importance of timing, relationships between parties, documentation, and the balance of convenience when property rights are placed in issue.
The plaintiffs were a couple who invested $500,000 with two defendants connected to a broader real estate Ponzi scheme. The scheme had collapsed around November 2022. The plaintiffs alleged that the primary defendants participated in and profited from the scheme, and that the invested principal was never repaid.
Before this lawsuit was filed, other investors had already commenced a separate claim against the same primary defendants. After that earlier claim was filed, but before the primary defendants defended it, three properties were transferred to people close to one of the defendants. Those properties were located in Burlington, Burlington, and Vaughan.
The plaintiffs alleged that the transfers were not ordinary real estate transactions. They argued that the properties had been transferred to non-arm’s-length parties to defeat or delay creditors after the investment scheme collapsed. The current property owners opposed the motion and maintained that they had paid fair market value, had pre-existing arrangements, or were unaware of any alleged fraud.
A Certificate of Pending Litigation (CPL) is a notice registered on title to real property. It signals that the property is involved in ongoing litigation and may affect the owner’s ability to sell, refinance, or otherwise deal with the property while the claim is unresolved.
In fraud and asset recovery litigation, a CPL can be significant because it may help preserve an interest in real property while the court determines whether a transfer should stand. It is not a final judgment and does not decide the lawsuit. Instead, it is an interim remedy that can protect the practical value of the claim.
However, because a CPL can seriously affect property rights, courts do not grant it automatically. The moving party must satisfy the legal test, and the court must consider both the strength of the claim and the potential impact on the property owners.
The Court considered whether the plaintiffs had met the test for a CPL in the circumstances. The relevant questions included whether the plaintiffs’ main action had a high probability of success, whether there was evidence that the property transfers were made with the intent to defeat or delay creditors, and whether the balance of convenience favoured issuing a CPL.
The first issue was relatively straightforward. The Court found it was uncontroversial that the plaintiffs had invested $500,000 and that their principal had not been repaid. The Court concluded that the breach of contract claim had a high probability of success, at least for the return of the principal plus interest.
The more contested issue was whether the property transfers were connected to an intention to evade creditors. This required the Court to consider the surrounding circumstances and the inferences that could be drawn from the timing and structure of the transfers.
The Court identified several “badges of fraud” that supported an inference that the transfers were intended to defeat or delay creditors. These included the fact that the properties were transferred after the plaintiffs invested their funds, after the alleged scheme had collapsed, and after the earlier investor claim had been filed.
The Court also noted that the properties were not listed on MLS, were transferred to non-arm’s length parties over a short 30-day period, and involved close family or friends of one of the primary defendants. One family member acted as the real estate agent on all of the transfers, while the primary defendant acted as the real estate lawyer on the transactions, which the Court described as a clear conflict of interest.
After the transfers were complete, one of the primary defendants advised one of the plaintiffs that the couple’s total joint assets were only $6,737. The Court found that these facts supported a strong inference that the transfers were made to evade the earlier claimants and other creditors, including the plaintiffs.
The property owners argued that they paid fair market value and were unaware of any fraud. In some cases, evidence of fair market value and lack of knowledge may be important to the analysis. In this case, however, the Court rejected the defence position on the record before it.
The Court gave little weight to certain supporting documents, including agreements of purchase and sale and trust ledgers, because they had been created by individuals who were themselves connected to the challenged transactions. The Court also rejected one set of owners’ claim that their agreement to purchase had been reached in 2022 rather than 2023.
The plaintiffs sought CPLs over all three properties. The Court did not grant the same relief for each one. For the first Burlington property, the Court found that the balance of convenience favoured granting a Certificate of Pending Litigation. The plaintiffs’ main claim was strong; some of the defendants were living in the property rent-free, and one of the current owners had played a central role in the transfers.
For the second Burlington property, the property had already been sold, with proceeds held in trust pending the motion. Because there was no longer a real property interest in the same way, the Court ordered that $500,000 remain held in trust pending the outcome of the litigation. The Court allowed any funds above that amount to be released, noting concerns about over-securing the potential damages award.
For the Vaughan property, the Court declined to grant a CPL. The Court found that, given the funds available through the other property and the money held in trust, it was not strictly necessary to encumber the Vaughan home. The Court also considered the fact that the owners lived there with their young child and that stability in schooling and community life weighed against granting the CPL.
The Court also awarded costs to the plaintiffs against several defendants. The Court noted that the evidentiary record was voluminous, multiple cross-examinations occurred, materials were delayed, and the hearing expanded from one day to two. The Court also commented that some defendants took unreasonable positions given the admitted factual context.
The total costs awarded were $38,000 all-inclusive. One non-defending defendant was ordered to pay nominal costs of $3,000, while several other defendants were held jointly and severally liable for the remaining $35,000. The owners of the Vaughan property were not ordered to pay costs because they successfully resisted the CPL against that property.
This decision is a useful example of how Ontario courts may approach asset preservation issues where alleged fraud, creditor claims, and real property transfers intersect. It illustrates that timing can matter greatly. Transfers made after a scheme collapses, after creditors begin suing, or shortly before a defendant’s assets appear to vanish may attract close scrutiny.
The case also shows that non-arm’s length transfers to family members and close friends can raise significant evidentiary concerns, particularly where the transactions are not publicly marketed and are completed within a compressed period. Claims of fair market value may be considered, but the supporting evidence must be reliable and persuasive.
Finally, the decision reinforces that CPL motions are highly contextual. Plaintiffs seeking recovery may need to move quickly to preserve assets, while property owners opposing a CPL may need to address not only purchase price and knowledge, but also the broader pattern of events surrounding the transfer.
For parties involved in Toronto civil litigation, commercial fraud disputes, creditor recovery claims, real estate litigation, or urgent asset preservation matters, early legal guidance can be important when property transfers, unpaid investments, or allegations of fraudulent conveyance are involved.
Milosevic & Associates helps clients assess available remedies, respond to Certificates of Pending Litigation motions, advance or defend fraud-related claims, and navigate complex litigation involving real property, creditor rights, and asset recovery across Ontario. Contact our team of Toronto real estate fraud litigation lawyers by reaching out online or calling (416) 916-1387.
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