Just weeks before he appears before the Ontario Court of Appeal to ask for a review of last year''s controversial Household Realty v. Liu decision, Toronto real estate lawyer Morris Cooper has extra support from a lower court on another case he argued on Sept. 5.
"As the fraudsters transferred the property and obtained the mortgage from the bank in one transaction, it was incumbent upon the bank to exercise due diligence . . . to prevent the fraud," wrote Echlin in the 10-page decision. "Clearly it did not."
He ruled the $247,860 mortgage "unenforceable" and ordered that it be removed from the land titles registry, along with the fraudulent conveyance.
In going to such lengths to address the "serious mortgage fraud plague" in Ontario, Echlin wrote a "precedent-setting" decision, said Cooper in an interview.
He pointed out that not only was the judge "scathing" in his criticism of TD Bank, but he also used "strong language" in his obiter dictum on Ontario's Land Titles Assurance Fund.
"It is a discretionary fund of last resort," said Echlin. "This means a claimant must first attempt to recover from all other resources [and] 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 re-victimized."
Cooper raised the same point in Rabi and plans to do so again when he stands before a five-judge panel of the Ontario Court of Appeal on Nov. 28. That's when he will ask the appellate court to reverse last November's Household Realty, which ruled that under s. 78 (4) of Ontario's Land Titles Act, two mortgages (obtained through falsified powers of attorney) "without notice of fraud are, once registered, effective and can be relied on."
The Court of Appeal decision affected Cooper's client, Susan Lawrence, who sought to have a phony mortgage registered against her home discharged.
In June, Superior Court Justice Edward Belobaba said he could not comply with the request in light of the Household Realty decision and suggested she apply to the Land Titles Assurance Fund for compensation.
But now, Cooper has Echlin's ruling to give added weight to his arguments before the Court of Appeal.
He can rely on some of the details of the decision where the judge criticized the bank for advancing money "to a fraudster in the absence of an interior inspection of the premises to be mortgaged (which would likely have averted the fraud)" and choosing "to delegate the due diligence" to mortgage brokers paid $30,000 as part of the transaction.
Echlin also found it "extremely curious that the condominium unit in question . . . was listed as having a locker and two parking units, and yet the fraudulent sale did not refer to these nor did it offer any explanation for the absence of such transfers."
In addition, "it was odd that there was no deposit. All of these red flags should have raised questions for the lender."
But Cooper can also point to a 1977 Supreme Court of Canada decision, which he presented to the Superior Court and which Echlin referred to in his Rabi ruling. In United Trust Co. v. Dominion Stores Ltd., the Supreme Court considered the effect of what is now s. 78(5) of the Land Titles Act, which deals with priorities.
As Echlin noted in his decision, the late Supreme Court justice Wishart Spence, in writing for the majority in United Trust, "stated that the doctrine of actual notice (a long-held and cardinal principle of property law), 'cannot be considered to have been abrogated [by the Act] unless the legislative enactment is in the clearest and most unequivocal of terms.'"
Wrote Echlin: "It is a well-established principle of property law that a fraudulent instrument cannot create a valid interest in land." He explained that in United Trust, the Supreme Court stated that Ontario's land titles legislation "does not revoke or abolish the common law."
In Rabi, TD Bank argued that s. 155 of the Land Titles Act, which states that a fraudulent "disposition of land" is void even if registered, actually overrides the common law, "making registration effective to confer title," as Echlin noted in his summary of the parties' positions.
He disagreed, stating that s. 155 "represents a commitment" of the Ontario legislature to the common law principles of property law, "and in particular that fraudulent dispositions are void and of no effect, save in limited circumstances."
Cooper told Law Times that thus far the United Trust decision has been "ignored" in mortgage fraud litigation.
But later this month, that ruling could be front and centre when Ontario's appellate court revisits Household Realty.
"There's no doubt that you can't reconcile what our Court of Appeal did last year with what the Supreme Court of Canada said is the law - and that [United Trust] appeal was from an Ontario court," said Cooper. "The common law with respect to fraud is very clear - fraud is a nullity."
Cooper said he "tested" all of his arguments in the Rabi case, which served as a "dry run" for his forthcoming appearance before the Court of Appeal. And he won't be alone. In addition to recently tabling legislation at Queen's Park to combat real property fraud, the Ontario government will intervene in the case.
But Echlin had a message for the government. "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."
Bill 152, omnibus legislation that would amend various acts administered by or affecting the Ministry of Government Services, including the Land Registration Reform Act and the Land Titles Act, would protect innocent property owners and purchasers from being victimized by fraudulent mortgages and title transfers.