Judge chides bank in mortgage fraud

Echlin faulted the bank for its failure to exercise "greater due diligence" in the face of numerous "red flags," including the fact that $30,000 was paid to mortgage brokers for a "standard mortgage" and "the absence of a deposit."

The Toronto Star
November 1, 2006

Judge chides bank in mortgage fraud
Couple's identity stolen, home lost. TD not 'innocent victim,' judge says.
Harold Levy

Ontario is experiencing a "serious mortgage-fraud plague," says a judge who released a blistering decision yesterday that chastised the Toronto-Dominion Bank for failing to detect a scam that left a North York couple without their home.

In a decision seen as precedent-setting, Superior Court Justice Randall Echlin ruled that Seyed Aboulgasm Rabi and his wife, Shohreh Shafiei, were the innocent victims of fraudsters who stole their identity, transferred the family condo behind their backs to an accomplice, then placed a $250,000 mortgage on the property, took the money and disappeared.

In bold, unequivocal language, Echlin nullified the mortgage, saying the couple "did nothing in any way to bring this nightmare upon themselves" and that the bank was not, as it had portrayed itself, an "innocent victim" of the crime.

Although the bank admitted that the Rabi-Shafieis were innocent victims of a "sophisticated fraud" — the couple did not learn about the fraudulent transactions until long after they had occurred — it argued that under a 2005 Ontario Court of Appeal decision, the fraudulent mortgage became legally valid and enforceable once it was registered on the province's land-title system.

But Echlin noted: "Ontario is currently experiencing a serious mortgage-fraud plague. This action involves one such fraud."

Toronto lawyer Morris Cooper, who represents the Rabi-Shafieis and several other victims of mortgage fraud in Ontario, described Echlin's ruling as "a remarkable precedent-setting decision."
"This is the first time we've had a court address in such depth what the judge describes as the ‘plague’ of mortgage fraud in Ontario," he said.

Cooper said the decision will "undoubtedly" be considered by the Ontario Court of Appeal when it reviews its controversial earlier ruling at a special hearing on Nov. 28.

"I have never seen a clearer message to the government, saying in effect, what you are doing isn't good enough."

Echlin ruled that the bank should not be able to rely on the strict letter of the law since it had not done enough to check out the mortgage — such as sending an appraiser to the couple's front door to ask a few questions before handing over the large amount of money.

"A person's home is their largest lifetime investment," he said. "A homeowner's rights ought to be at least equal to the rights of commercial lenders in the face of the increasing prevalence of identity thefts."

Echlin faulted the bank for its failure to exercise "greater due diligence" in the face of numerous "red flags," including the fact that $30,000 was paid to mortgage brokers for a "standard mortgage" and "the absence of a deposit."

"In this day and age of impersonalized mortgage lending and borrowing in which banks download the appraisal process to a mortgage broker, who in turn does as little as possible to maximize profit, such frauds can and will occur," he said.

"I cannot help but observe that there ought to have been more care taken in advancing a sum in excess of one-quarter of a million dollars."

The bank did not oppose the couple's request for an order returning the title of their home, but during the hearing it held to its claims under the fraudulently obtained mortgage.

TD spokeswoman Kelly Hechler said the bank is reviewing the decision "to see how we can tighten procedures to protect ourselves as well as our customers," and to determine whether it will appeal the ruling.

Echlin also took aim at Ontario's Land Titles Assurance Fund — set up to compensate victims of real-property fraud — which he described as "a discretionary system of last resort" that requires homeowners "to first attempt to recover from all other sources."

"This can involve years of proceedings and tens of thousands of dollars in legal expense, not to mention heartbreak and aggravation…. Victims of the system are essentially revictimized," the judge said.

"Finally, thought ought to be given to ensuring that all past, present and future victims of fraud under the Land Titles Act are provided with the protection and the assurance they expect from a system run by the government and held out to the public to be a system which can be relied upon," he said.

Government Services Minister Gerry Phillips, who recently introduced a bill aimed at curbing real-property fraud, said reforming the fund "is a priority.''

Phillips said he is open to amending his bill, now undergoing second reading, to make the fund accessible at the outset. "We've got to make it an awful lot easier for people to get their compensation," he said.

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