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| Real Estate Fraud |
| THE LAW & YOUR PROPERTY |
| The Law & You offers general comments on legal matters of concern to business and individuals. The articles are not intended to provide legal advice or opinions. Readers should seek professional legal advice on the particular legal issues which concern them. ©2006 Kimberly Walsh, Cornwall, Ontario, Canada |
| Although not a rampant crime, the problem of real estate fraud is very real. Real estate fraud can result in a home being sold or mortgaged without the knowledge of the legal owner. Up until recently this has meant that innocent owners risk losing their home, since the scam artist is usually long gone by the time the fraud comes to light. The following is one couple’s story of real estate fraud.
The Facts In 2001, the Rs purchased a condo in north Toronto. Three years later, the property was mortgage free. Unbeknownst to the Rs, while they were paying off the last of their mortgage, fraud artists, posing as the Rs, purported to sell the condo to a bogus purchaser. The price for this fraudulent sale was $270,000. In addition, the bogus purchaser was able to secure a mortgage on the Rs condo from TD in the amount of $247,860. The fraud artists presented what appeared to be proper identification at the time of the sale and the deed and the mortgage were registered at the Registry Office. When the Rs discovered what had happened they sued the bank. Specifically, the Rs sought to have title to their condo restored to their names and the fraudulent mortgage set aside. Although the bank agreed that the fraudulent transfer was invalid, it argued that the mortgage was a valid charge on the property. The Law In 1885, Ontario adopted a land registry system whereby title to real property would be established by setting up a register. The register would guarantee that the person named as property owner had title, subject only to any registered encumbrances. The job of the registrar is to verify that the proper documents (e.g. transfers and mortgages) are properly completed, to accept the designated fees and land transfer taxes and to correctly register the documents on title. Note that it is not the registrar’s job to verify whether owners have indeed sold and/or mortgaged their property. Although the government eventually enacted the Land Titles Act, the Supreme Court of Canada has stated that the statute did not abolish the original principles of the common law. The Decision The judge in the Rs’ case concluded that the mortgage was a fraudulent charge and was void. He recognized that the Rs and the bank were both innocent parties, but held that only the bank had been in a position to do something which might have been able to prevent the fraud. In the judge’s view, the bank had failed to exercise due diligence by ensuring that a proper in-person appraisal was carried out prior to releasing the mortgage monies. He also found that certain anomalies should have put the bank on notice that something was not right. The end result was that, in this instance, the bank could not rely on the register. The Latest In early 2007, the Ontario Court of Appeal heard an appeal involving a similar situation. The appellate court sided with the home owners and set aside the bogus mortgage. Up until this case, most fraudulent mortgage cases had been resolved in the mortgagee’s favour. What To Do? Although this type of fraud is more common than ever before, it remains relatively insignificant when one considers the number of transactions that are registered on a daily basis in the Ontario Registry System. The Ontario government recently amended the Land Titles Act to ensure that ownership of property cannot be lost as a result of the registration of a falsified mortgage, fraudulent sale or a counterfeit power of attorney. Any land titles obtained by fraudulent means will be null and void. The changes will also speed up financial assistance for victims of fraud, ensuring the title is returned and a decision on compensation is made within 90 days. In addition, the maximum penalty for real estate fraud has been raised to $50,000 from $1,000. A pro-active step that you can take to protect yourself from this kind of fraud is to purchase title insurance. It can be ordered through your lawyer during a refinance transaction or at any time during the course of home ownership. The policy will be effective from the date on which you took title to the property until you sell your home. If you would like to learn more about purchasing title insurance please contact your lawyer. |