Risk Management: Lenders Beware
On Tuesday I blogged about mortgage fraud and suggested that financial institutions may be at greater risk because of the B.C. Court of Appeal decision: Re Oehlerking Estate, 2009 BCCA 138.
Why would they be at increased risk?
In the B.C. case, the Judge ordered that the fraudster’s title be set aside and that a new title be issued in the name of the plaintiff executrix. However, the Judge was satisfied that the financial institution had not “participated in the fraud” therefore the mortgage remained as a valid charge on title to the land.
The B.C. Court of Appeal overturned that latter point when it declared that the mortgage is null and void as against the plaintiff and her title.
The reasons were the same as those presented in a B.C. Court of Appeal decision released on the same day in Gill v. Bucholtz (2009 BCCA 137). There is a thorough review of the Torrens land registry system and the development of B.C.’s Land Title Act. Land title systems differ per province but the B.C. decision is likely persuasive.
In Gill v Bucholtz, the Court held that the B.C. Legislature adopted the policy that the cost of frauds perpetrated against mortgagees and other chargeholders should be borne not by the public (as the funders of the Assurance Fund but by lenders and other chargeholders themselves.”
Parties to real estate transactions rely on title searches. The case law shows that title searches have limitations, especially if a fraudster has used someone else’s identification to change the title document. It is up to lenders to now perform due diligence that may require that they delve deeper than the documents alone. Sometimes good old fashioned shoe leather might be put to work to check out the property in question; even a knock on the door to ensure that the owner is actually refinancing by way of a new mortgage. This extra work may come with a fee though.
Thank you for reading.