Draft fraud law ignores innocent buyer
Excerpt from an article by Bob Aaron
The announcement by Government Services Minister Gerry Phillips that he intends to introduce a law to curb mortgage fraud will result in a major overhaul of Ontario’s land registration system. Unfortunately, the changes could also create far more problems than they would solve.
According to the government’s announcement, the proposed legislation would ensure that ownership of a property could not be lost as the result of the registration of a falsified mortgage, fraudulent sale or a counterfeit power of attorney.
Instead, an innocent homeowner’s title will be restored to him or her and the fraudulent document will be nullified — even if the new owner and new lender are innocent.
In other words, says the government, forged documents will not be allowed to stand.
Here’s the problem with the proposal: Under the current Land Titles system, anyone wanting to buy or lend money against a property completes a search of title and is able to rely on the title record as a government guarantee of ownership — even if there was some fraud along the way, one or more owners back in the history of ownership. At least, that’s the way it is supposed to work.
Now, along comes Government Services Minister Gerry Phillips, who, with the best of intentions, announces that innocent victims like Susan Lawrence, Elizabeth Shepherd and Paul Reviczky will no longer lose their houses to fraudsters. Their titles will be restored to them, Phillips announced, and “the fraudulent document will be nullified.” (Whether or not any of them has actually lost his or her home or even been evicted is another story altogether, but for the moment the loss is a paper one only.)
The problem, of course, is that although an innocent buyer has unknowingly purchased a house from a fraudster, his down payment is genuine money, his mortgage to the bank is a real loan which was approved based on real income and assets, and his $50,000 in renovations is also real money. And he still owes the bank lots of real money after the government cancels his registered deed.
Under Phillips’ plan, people like Lawrence, Shepherd and Reviczky will be protected, but the unlucky purchaser will be out in the cold, and so will his bank, which will then sue for repayment of the money it loaned to him. Now, instead of the photo of Paul Reviczky on the front page of the Star, the innocent purchaser will be shown sitting on the front lawn surrounded by his furniture.
And what of the innocent mortgage lender? Who will protect the banks or private lenders if they lend money to an innocent owner in good faith?
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