Friday, November 03, 2006

Ontario Court Rules Against T.D. Bank in Mortgage Fraud Decision

Mortgage fraud leads this week's updates.

In an important Ontario Superior Court decision, Rabi v. Rossu and Toronto Dominion Bank, the Court shielded two Toronto condominium owners who were victimized by a mortgage scam from enforcment action by the T.D. Bank.

In in refusing to uphold the bank's claim that the mortgage remained enforceable, even in the face of an admitted and flagrant fraud, Mr. Justice Randall Echlin noted the following:

Arguably, the bank could have exercised greater due diligence before advancing a sizeable sum at the request of a mortgagor with whom it had never before had dealings. It delegated dealings to a mortgage broker who had no authority to bind the bank. Important telltale signs of the fraud were missed including the highly unusual failure to convey parking and storage spaces; payment of $30,000.00 to mortgage brokers for a standard mortgage; and the absence of a deposit being paid. If any of these simple matters had been noticed, the fraud might have come to light.

The appraisal exercise failed to even send an appraiser into the unit. A simple interior house inspection could have thwarted a mortgage fraud attempt such as occurred in this instance. Where the lender is granted an interior inspection, a fraudulent mortgagor would be less likely to be able to pull off its scam.

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. 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 complete text of Mr. Justice Echlin's decision is here. Also see the following links for news reports and commentary:

-Garry J. Wise, Toronto

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