Jul 21 | 2017

What We Can Learn From Toronto-Dominion Bank v. Currie

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What we can learn about fraud from Toronto-Dominion Bank v. CurrieTo what extent will a private lender be bound by the actions of a mortgage broker working on its behalf?  Will Canadian courts deem the broker to be an agent of the lender?  Will this apply even to fraud committed by the broker?  Earlier this year, in the case of Toronto-Dominion Bank v. Currie, the Alberta Court of Appeal issued a decision on precisely these questions.

Currie was a private lender who used a mortgage broker, Fuoco, to handle some aspects of his mortgage lending business.  In this case, Fuoco arranged for Currie to lend $220,000 to the Craigs, and Currie provided them with a mortgage for their property.  The mortgage instructions stated that all communications regarding the mortgage were to be directed to “DAN CURRIE c/o Fuoco Holdings Ltd.”

Following a default on the mortgage, the Craigs arranged new financing with TD Canada Trust.  The bank’s lawyer wrote to Fuoco requesting a payout statement for Craig’s mortgage.  Fuoco prepared a payout statement for Currie to sign, showing a balance owing of $249,992.55.  For reasons that are not clear from the court’s judgment, Fuoco did not provide this figure to the bank’s lawyer, but instead provided a different payout statement, showing only $75,000.00 as being outstanding, and directing the payout funds be made payable to Fuoco.  Upon closing, the bank’s lawyer sent this amount to Fuoco, who escaped with the funds, never having provided a discharge of the mortgage.

The Court of Appeal had to decide which of the two innocent parties, Currie or the bank, should bear the cost of Fuoco’s fraud.  The Court concluded that, by using Fuoco’s services in his lending business, and allowing Fuoco to receive communications and prepare mortgage payout statements on his behalf, Currie had given Fuoco actual authority to act as his agent, and therefore it was Currie who had to bear the loss resulting from Fuoco’s dishonesty.

This case highlights some important considerations for mortgagees and their lawyers.  When acting for an incoming lender, lawyers should always ensure that they purchase title insurance.  What looks like a valid payout statement or discharge could later be challenged by the previous mortgagee itself. Even if, as in Currie’s case, the new mortgagee is ultimately successful, there can be considerable time and money spent on litigation.  Lawyers should also consider adopting the practice of insisting on having an executed discharge from any outgoing private lender in hand prior to closing.  This is already standard practice in some parts of Canada, and goes a long way toward reducing confusion and risk following closing.

While in this case, it was the mortgage broker who committed the fraud, there are other cases in which it was the lawyer or even the borrower. There are measures that brokers and borrowers can also take to ensure they are not involved in a fraudulent transaction.

Mortgage brokers can protect themselves from fraudsters by verifying all the information provided by their clients. For instance, it is a red flag if their salary doesn’t make sense for their stated occupation. Borrowers can ensure that they purchase title insurance so that their legal costs will be covered if they ever have to defend their title. It will also protect them from a host of other issues such as survey or title defects.

Everyone involved in a real estate transaction has the responsibility to protect themselves from fraud.

How do you make sure that you’re protected? Share it with us in the comments section!

Mar 17 | 2015

Top real estate frauds of 2014 —The best of the worst

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As is our custom during March — Fraud Prevention Month — we bring you the previous year’s top fraud stories. And once again there was no shortage of scams or victims to some of the largest financial crimes reported in Canada. However, what is notable about this list is that most of the fraud artists were women. Here is my equal-opportunity list of the best of the worst for 2014:



1.    Centrium Condominium Fraud in Toronto — Canada’s largest condo fraud

An estimated $15 million in deposit money slated for down payments on a new condo development went missing from a lawyer’s office in Toronto. Lawyer Meerai Cho faces 75 charges in connection with the theft and her license has been suspended by the Law Society of Upper Canada. The only silver lining is that Tarion, which administers the provincial home warranty, will likely provide some coverage for those defrauded.

2.    An amazing opportunity to invest in South American and South African wineries!

Or so the 200 people who invested money with Rashid Samji thought. The British Columbia-based financial planner was actually operating a $110 million Ponzi scheme, selling a 30% return on the investments of the “Mark Anthony Group” in international wineries. She faces 32 charges and up to $33 million in fines under the BC Securities Act.

3.    Breaking Bad in Alberta

In October, Allan Dawson MacMullin, ringleader of a $6 million mortgage fraud was described as an “economic predator” and a “heartless racketeer” then handed a 10-year prison term. He was also ordered to pay more than $1 million in restitution to two financial institutions and various individual straw buyers after being convicted of 38 counts of fraud for incidents of mortgage fraud that took place between 2000 and 2004.

4.    Converting mortgage proceeds to gold bars in Toronto

Apparently this can be done — who knew? Early in 2014, we learned about Omar Kalair who was offering mortgage arrangements to devout Muslims who believed that they were forbidden under Islamic law from making interest payments. He apparently converted the money into gold bars, coins and electronics and then skipped town. Which begs the question: how did he manage to leave with all the loot in tow?

5.    How far does $3.5M Canadian go in India?

Although the recent drop of the Canadian dollar has probably not helped with her long-term plans, Reta Grewal, the Mississauga lawyer who went missing in November with $3.5 million of her client’s mortgage money can answer that question.

Mar 10 | 2015

Title insurance — fraud protection and more

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fraud_and_more_smallAs a lender, when you make the decision to release funds, you need to know that your loan is well protected. Otherwise you and your organization could be at risk for losses associated with (but not limited to) the following:

•    Liens
•    Defects revealed by an up-to-date survey
•    Challenges to the enforceability or validity
of the mortgage
•    Title defects

With title insurance in place you can rest easier, knowing that you’re protected. And if you aren’t yet sold on its value, consider these real-life examples where title insurance saved the day.

Super priority lien
A title-insured mortgage went into default and the lender proceeded to sell the property. However, unbeknownst to the lender, the borrower had failed to remit GST payments to the Canada Revenue Agency (CRA). The CRA claimed priority over the insured lender’s mortgage so they were paid out first from the proceeds of the sale of the property. This resulted in a shortfall of over $20,000 for the lender. Because of the title insurance policy in place, the lender was reimbursed for the amount owing to the CRA as of the policy date, minimizing their potential loss in this situation.

Survey defects
A lender had approved a mortgage on a grocery store which then went into default. The lender attempted to sell the property to recover the debt, only to discover that in a previous transfer of the land, a portion of the land that included a parking lot and loading dock was never properly conveyed. Therefore, this parcel of land still belonged to the original owner, who offered to sell it to the insured lender at a highly inflated rate. He knew that without it, the lender’s sale of the grocery store would be difficult. Since no agreement could be reached, FCT stepped in and compensated the lender for a reduced purchase price for the mortgaged land. The original owner later negotiated the sale of the parking and dock areas at a fair market price and no one suffered a loss thanks to FCT’s involvement.

Mortgage enforceability
A lender had issued a mortgage for just under $1M to a husband and wife. When the mortgage went into arrears and the lender attempted to contact the mortgagors, the wife advised the lender that she and her husband were currently in the middle of a highly contested divorce settlement and that she had never signed any mortgage documents. Because it was arranged without her knowledge or consent, she claimed that the mortgage was unenforceable. Since the lender had insisted on the mortgage being titled insured when they approved funding, FCT covered them for the legal costs of defending the enforceability of the mortgage and the loss as a result of negotiating a settlement with the wife.

Title and/or legal description defects
A mortgage in the amount of $110,000 was in arrears and the lender commenced a power of sale to try to recoup their investment.  Once the proceedings were underway, the lender was advised by legal counsel that there was a life interest registered on title, making it impossible to sell the property until that individual was either paid out or signed off on the sale. Since the holder of the life interest had since passed on, FCT retained and paid for counsel on behalf of the lender to delete the life interest from title. The sale went ahead as planned and lender was able to avoid a loss.

Do you have any fraud stories or prevention tips you’d like to share? Feel free to comment below.

Feb 26 | 2015

Hasn’t the government fixed the land title fraud problem?

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hasnt-fixed-prob_smallDuring speaking engagements, I often raise the issue of title fraud. When I discuss the possibility that a fraudster could sell your home to an innocent third party and abscond with the proceeds, I usually get the following comment:

“I know this was a big problem a number of years ago but hasn’t it been cleared up?”

My response: “Yes, there were some legal changes made by governments, but title fraud and real estate fraud are still a real and present danger for any homeowner today.”

Here is the source of the confusion:

Previously under old Land Title Act laws, if a fraudster sold your house to an innocent third party the innocent third party got to keep your house.

Now under new Land Title Act laws, you get to keep your house, but you still have to prove that you were the victim of fraud and that you “didn’t do it!”

So don’t be lulled into thinking that the possibility of land title fraud no longer exists. That is what the fraudsters want you to think. In fact, there is no surefire prevention for title or mortgage fraud — as there is no surefire prevention strategy for any form of fraud. The reality is that we can take steps to reduce our risk and ensure we are protected from the negative legal and financial impacts of real estate fraud through insurance products like FCT’s Title Fraud Protection+.

Recovering your title is a legal process and generally costs between $10-15,000. Title insurance is a one-time premium with no deductibles  that stays in place for as long as you own your home. Title insurance premiums start at $350 and are based on the value of your home.

Make an informed decision about title insurance for your home as part of your long-term financial plan. Visit www.RetireYourHome.ca  for more information.

May 13 | 2014

Commercial title insurance as a ‘safety net’ vs. title insurance as a ‘Band-Aid’

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Commercial title insurance In my last blog, The value of commercial title insurance, I highlighted the key areas of coverage offered by our commercial policies (e.g. title, off-title and transactional). What I stopped short of describing was how the policies also provide legal professionals with the ability to close transactions much more efficiently by reducing the need for certain steps in the closing process. I usually like to explain this benefit to customers by showing how title insurance acts as a ‘safety net’ as opposed to how many people view it as more of a ‘Band-Aid’.

As a Band-Aid

I sometimes get comments that title insurance is just a ‘Band-Aid’ solution to a title defect. It doesn’t fix the problem, but rather, just bounces the issue down the road for another day. Some of these are issues that only lawyers would understand and care about, such as old leases where the tenant is no longer in possession; old mortgages that have been paid out but not discharged; old construction liens; a dower rights issue; minor encroachments etc. When used in this way, title insurance can insure over these matters and allow the deal to close on time while protecting the insured. The purchaser can always decide whether or not it wants to spend the time and money to have these matters cleaned up after closing.

But what about unknown defects that are also covered on closing? One analogy is title insurance as a protective ‘safety net’.

As a safety net

If you think of the closing process as the journey a hiker would take to get from one mountain top to the next. That hiker has two potential options:

Option 1) The valley

You could travel from the top of the mountain down to the valley and back up the next mountain ridge. Taking this path is time consuming as it includes many steps/obstacles, such as crossing streams or going around cliffs and it could present many risks that you need to react to. In comparison to a real estate closing, these steps could include getting a survey; confirming agreement compliance; and confirmation of the non-existence of work orders. The risks you find could be an encroachment or zoning issue, or that a work order is outstanding. We can provide coverage over some of these known issues as per the Band-Aid analogy; however did you know there is another option? An option of using title insurance proactively vs reactively to cover a known issue….

Option 2) The foot bridge

You can also take the foot bridge from peak-to-peak. This is the quickest way to get from point A to point B, avoiding some of the steps/obstacles and risks in the valley. But as a prudent lawyer you would never take a shortcut knowing the potential risk associated with this path. Is the bridge safe all the way to the other side or rickety somewhere along the way? What if a sudden storm arises when the hiker is at the middle of the bridge? Traditionally you would never take this path, but with title insurance as your ‘safety net’ you can, and many commercial lawyers do.

When you decide to get title insurance earlier in the deal, it gives you this option to take the quickest path making for the most efficient closing process. You avoid the time, money and effort associated with conducting many searches, while providing coverage for known and unknown issues that could come up later. And the best part is that this safety net will be there for the next transaction as well.

So ask yourself:  will you choose to make the trek through the valley or will you rely on the safety net? The journey is yours.

Apr 16 | 2014

The Value of Commercial Title Insurance

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Commercial Title InsuranceDuring my 11 years in the title insurance industry I’ve been often asked the question: “What is the value of title insurance?” This is invariably followed by a comment like: “We have a great and robust land titles system so nothing can go wrong.” A former colleague of mine told me at one point that we should be really calling it off-title insurance, as the policies cover, not only title issues, but also many off-title matters as well. Commercial coverage tends to fall under 3 distinct areas: 1) title issues; 2) off-title issues; and 3) transactional issues. Let’s look at some real underwriting and claims examples.

1)    Title Issues
We are often presented with a situation where a lawyer is closing a purchaser or loan transaction and the certificate of title reveals a caveat that was registered, for example, some 30 years ago, and the document has been misplaced by the Land Titles office and therefore cannot be reviewed. What would you, as a prudent solicitor, do? Without title insurance, you would advise your client as to the possible risks involved (although this would be difficult without knowing the contents of the caveat) and the client would then decide whether to accept the risk or not. However as title insurers we can underwrite this title defect and determine whether we can give either full or limited marketability coverage and thereby minimize your client’s risk and allow the deal to proceed. Another example we come across is where a caveat or other document has been registered in error by the Land Registrar on the wrong title. Title insurance can again be the solution to allow this deal to close.

2)    Off-Title Issues
An insured wanted to buy an existing 9 hole golf course in a resort area with the view of redeveloping the site into an 18 hole course surrounded by accommodations, restaurants and other amenities. The insured spent a considerable amount of time discussing its proposal with the local municipal officials to ensure that its new development would be acceptable to the municipality and comply with the applicable zoning by-laws then in place. Based on the assurances received from the municipal officials, the insured proceeded to close the transaction with a purchase price that reflected the proposed use. Two weeks after closing the insured received an email from the municipal official dealing with the matter entitled “Oops”. The official had neglected to take into consideration an amendment to the zoning by-laws which effectively meant that the proposed project would not be permitted. The value of the land had therefore just plummeted. The insured made a claim under its title policy based on the error by the municipal official and was compensated for the diminution in value of the property.

3)    Transactional Issues
Our insured was purchasing a leasehold interest and had submitted the lease for registration. Unbeknownst to the insured tenant, the landlord was simultaneously completing a corporate re-organization that included a change in name. Due to bad timing, the landlords request to change its name on title was submitted prior to the lease and therefore the lease was rejected as it did not show the proper name of the landlord as it now appeared on title. As the lease could not the registered, the insured submitted a claim. We retained counsel to correct the lease and have it resubmitted for registration and also covered the risk of any possible intervening registrations happening during this gap period that may have affected our insured’s interest.

These are but a few examples of how title insurance can be of value in a commercial real estate transaction. Other examples are fraud, super priority liens, survey issues, and many more.

What types of issues or challenges have you faced in your transactions?

Nov 14 | 2013

Will you face the risk of mortgage fraud without title insurance?

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mortgage fraudRecently I read an answer column in @TheProvince suggesting to a BC homeowner that they work with a bank and a lawyer to remove a fraudulent mortgage from their property. http://ow.ly/qorbe My heart sank when I noticed the absence of any information about title insurance by the homeowner or the columnist.
Hot housing markets with high home prices attract fraudsters. BC has some of the highest home prices in the country and counter-intuitively one of the lowest adoption rates of title insurance. I have created a chart below to demonstrate what happens if there is a mortgage fraud on your house with and without title insurance.  On one side of the table are the steps a homeowner with title insurance needs to do when he/she finds out that there is a fraudulent mortgage on title and on the other side are the steps for a homeowner without title insurance. The process from a title insurer’s perspective generally takes 3-8 months depending on the complexity of the claim.

Actions With Title Insurance Without Title Insurance
At time of home purchase Homeowner pays one-time premium for a homeowner title insurance policy. Premium is based on home purchase price. For properties valued between $200- $500,000, the premium averages $250-$350. Homeowner may also purchase Title Fraud protection policy after purchase (Cost is slightly higher than at time of purchase transaction) Homeowner declines or is not advised of homeowner’s title insurance at time of purchase.
Secure legal representation Contact title insurer and submit claim:- Provide documentation, statements etc to title insurer to establish coverage under claim. Title insurer secures representation on claim file with a knowledgeable legal advisor. Homeowner must locate a lawyer who practices in the area of title fraud.- Homeowner(s) must attend an initial meeting with & determine if they want to retain that lawyer to take on their case. May require more than 1 meeting
Cost for legal representation There is no deductible on a title insurance policy. Homeowner must discuss terms of payment with the retained lawyer and pay an upfront  retainer if requiredEstimated $3,000-5,000.
Hearing Process Once title insurer agrees to cover your claim, insurer completes the process of having the fraudulent mortgage deleted from title. Insured may be required to attend meetings or hearings to complete the process Homeowner must liaise and instruct the lawyer as the case continues.
If hearing is successful, fraudulent mortgage is removed from title<
May be able to recover some costs from a Provincial Land Title Assurance Fund
Total Cost to Restore Title Policy Premium amount averages: $250-$350.00 $10,000-15,000.00 estimated

The real benefits to the homeowner with title insurance are as follows:

  1. You have the peace of mind that you have insurance coverage for the issue;
  2. You do not have to worry about paying any of the out-of-pocket legal costs associated with having the mortgage deleted from your title;
  3. You have the peace of mind that you are dealing with a company that is very familiar with the    issue of title fraud and will choose knowledgeable professionals to deal with the matter; and
  4. The cost to you at the end of the day will be significantly less.

Again it should be your choice as a homeowner on how much risk you are willing to take on the issue. So be an informed consumer and, please ask us questions!