B.C. Appellate Court Sides With Victims Who Lost Homes In Deed/Refinance Scams Involving Use Of Forged Documents; Duped Lenders End Up Holding The Bag

In Vancouver, British Columbia, The Canadian Press reports:

• The B.C. Court of Appeal wants the province to come up with stricter laws forcing lenders to do a better job of vetting mortgage applicants to ensure they aren't securing property that's been stolen. In a ruling issued [last] Monday, the Court of Appeal concluded that it shouldn't be good enough for anyone lending money for a mortgage to rely only on a title search to show who is the rightful owner of a property.

• But under the B.C. Land Title Act as it is currently written, the court found that lenders have only to do a search. A lower court judge concluded that if the property shows no liens and a lender gives out a mortgage based on that search, the lender has a valid mortgage and is entitled to be repaid. In other words, even if the rightful property owners get their property back, they are still stuck paying for mortgages they didn't take out, according to the lower court ruling.

• The Court of Appeal disagreed and instead concluded that the lender — not the rightful property owner — is the one out of luck in a fraudulent mortgage scheme.

***

• The Court of Appeal was examining two cases(1) where people fraudulently had their property transferred to someone else without their knowledge. Mortgages were obtained on the properties after the fraudster went to some people for a loan based on the equity in the property. The lenders advanced the money after doing a titles search and finding no liens on the properties.(2)

• But then the fraudster disappeared and the crime was discovered after the lenders began foreclosure proceedings. The victims of the frauds went to court(3) to have the mortgages declared void, but the lower court ruled the lenders followed the rules and the owners were out of luck. However, the Court of Appeal concluded lenders must ensure their mortgages are valid by taking steps to ensure that the registered owner obtained title to the property legally.(4)

For the story, see B.C. Court of Appeal overturns ruling on mortgage fraud.

Go here, Go here, Go here, Go here, Go here, Go here, and Go here for other posts related to deed or refinancing scams by forgery, swindle, power of attorney abuse, etc.

(1) Gill v. Bucholtz, 2009 BCCA 137 (April 6, 2009); Re Oehlerking Estate, 2009 BCCA 138 (April 6, 2009).

(2) The story and the cases are silent as to whether the lender obtained a title insurance policy to insure its interest in the property. (Could it may be that no such insurance is available in British Columbia? Is it possible that the burden is on the homeowner to obtain insurance covering against the risk of having the title to his/her home stolen?) In the United States, the risk that title was obtained by forged documents is generally referred to as an "off-record risk" or "hidden hazard" that is typically covered by a title insurance policy. In the case of a mortgage company that lends money on a title acquired by forgery, having acquired a title policy to insure its interest would generally entitle it to indemnification for its loss, leaving the title insurer holding the bag. For a list of 35 off-record risks, or hidden hazards, that a title insurance policy generally protects a homeowner and mortgage lender against, see Title Insurance: What Risks Does It Protect A Property Owner Against? (footnote 1).

(3) It is important to note that the victimized homeowner has the burden in these types of cases to go to court (preferably with a real estate attorney who knows what he/she is doing) and file a civil lawsuit seeking to void the forged deed and mortgage. Failure to do so will likely result in a loss of the home. For an example of what could happen when the victim fails to go to court to void the forged deed and mortgage, see Oshawa mother faces eviction after alleged mortgage scam.

(4) A little over a year ago, an Ontario Superior Court addressed a similar situation - one where a then-88 year old man had his home stolen from out from under him through the use of a forged power of attorney. The scammer subsequently pocketed the proceeds from a fraudulently obtained mortgage. The Superior Court decided the case in his favor, ruling that the mortgage lender should rightfully be left stuck holding the bag. For more on this story, see:

• Reviczky v. Meleknia, et al., (2007), 88 O.R. (3d) 699 • (2007), 287 D.L.R. (4th) 193 • 2007 CanLII 56494 (ON S.C.);
• The Toronto Star: Man, 90, off hook for loan: Court (Landmark ruling lifts $300,000 burden);
• Law Times: Bank didn’t take proper steps (Mortgage fraud decision will impact real estate industry);
• The Toronto Star: House fraud decision rocks industry (Bank `did not take steps to scrutinize the power of attorney,' judge rules). DeedZetaTheft