Transactions in question involve fixed-income seniors and 25 percent 'usurious' interest rates
A Law Society of Ontario discipline tribunal has temporarily suspended the licence of a Mississauga lawyer for allegedly participating in or facilitating a predatory mortgage loan scheme involving vulnerable senior citizens.
“An order suspending the lawyer’s [Danielle Harrison] licence is the only outcome we can properly accept,” Scott Marshall, chair of the law society tribunal that looked at the complaint, wrote in a June 2 decision.
“There are reasonable grounds for believing the lawyer presents a significant risk of harm to the public and the public interest in the administration of justice. Only a suspension will obviate the potential harm. There are no lesser measures we can impose in the circumstances.”
It added: “Real estate lawyers have a particular obligation to protect against fraud and ensure each transaction is bona fide regardless of which party they act for in the transaction.”
The decision said that Harrison, who has been with Keyser Mason Ball LLP in Mississauga since 2020 and was “essentially running” KMB’s residential real estate practice, misled the law society about her continued involvement with participants in the scheme and used a trust account as a sole practitioner without disclosing this to the law society as required.
Harrison could not be reached for comment, and the law firm has not yet responded to an emailed request for comment.
The panel looking at the allegations also found that the mortgage transactions exhibited many “red flags” of predatory lending schemes, including a 25 percent “usurious” annual interest rate imposed on elderly borrowers living on modest fixed incomes.
The tribunal also ruled the lawyer failed to advise her borrower clients of the “very concerning terms” of these often-unnecessary mortgages, which would likely lead to default.
“The panel also found that there appeared to be a lack of integrity in the lawyer’s dealings with the law society as a result of her failure to disclose all of her trust accounts when requested.”
The panel granted the motion for an interlocutory suspension, and the matter will now go to a tribunal panel on the merits of the proceeding.
Allegations of door-to-door salespeople ‘inducing’ seniors to take out mortgages
The investigation alleges that door-to-door salespeople induced senior homeowners to sign contracts for home equipment such as HVAC systems and renovations with monthly payments secured by a notice of security interest registered on title to the properties, often without their homeowners’ knowledge. In some cases, the senior citizens were also induced to take out small mortgage loans to pay for further home renovations and services.
More door-to-door salespeople subsequently are alleged to have approached the senior citizens to sign further home renovation contracts financed by a large mortgage (between $100,000-$550,000) on their property.
The law society investigation determined there are several features in common with these mortgages:
- the senior homeowners were on low fixed incomes;
- they had substantial equity in their homes;
- multiple Notice of Security Interests (NOSIs) were registered on title to the properties within a short period;
- large principal amounts compared to the borrowers’ apparent needs;
- interest rate of 25 percent;
- the interest for the year was pre-paid and deducted from the mortgage advance;
- apparent inability of the senior homeowners to repay the mortgages.
The decision noted: “Many older adults live on a fixed income, which does not allow them the flexibility to overcome unforeseen emergencies. In contrast to their often-limited prospects to earn income, many older adults have built up substantial equity in their homes. This can make them tempting targets for predatory lenders.”
The recurring players in the transactions were Centum Mortgage Smart Inc., Canada Choice Investment (CCI), and Canada Choice Capital. CCC and CCI are related companies with the same director.
The decision said Harrison acted for CCC in registering NOSIs on the title of the homes of her eventual senior clients. The CCI mortgages were used to pay out CCC’s NOSIs.
Marshall wrote in the decision that the respondent did not disclose her prior involvement with CCC to her elderly clients. The senior citizen borrowers were referred to Harrison by Centum mortgage broker Ranjit Dhillon.
Harrison “should have been alive to the conflict of interest with respect to CCC and CCI,” Marshall wrote. “She registered NOSIs for the former and, in some cases, later registered mortgages on the same properties for CCI. She should also have been alive to potential conflicts of interest in acting on behalf of both CCI and their borrower clients.”
The law society received four complaints concerning these allegations: two from the Advocacy Centre for the Elderly on behalf of two senior citizens, one from a senior citizen’s attorney for property, and another from an elderly couple’s daughter. All are related to CCI mortgages brokered by Centum. According to the law society investigator on this case, other complainants have since come forward.
The society also obtained 31 transaction files from Harrison involving senior citizens taking out mortgages with CCI, which Centum brokered with the same characteristics.
In three of the complaints against Harrison and the 14 transactions she provided to the law society, she acted for the senior citizens. In one of the complaints and 17 transactions disclosed by Harrison, she acted for the lender.
“The evidence . . . suggests that the lawyer never cautioned her borrower clients about the onerous terms of the mortgages or the high cost of borrowing. In at least three of the complaints against the Lawyer, the borrower clients defaulted on the mortgages, resulting in enforcement proceedings against them.”
Harrison and KMB assured the law society in or around February 2022 that they were no longer acting for CCC, CCI or accepting retainers from Centum. “Despite this assurance, the lawyer continued to register NOSIs on behalf of CCC and in two matters acted for CCI,” the decision said.
“Further, parallel to her employment with KMB, [Harrison] appears to have been operating her own law firm through her professional corporation.
“The evidence reveals that beginning in April 2022, [she] processed up to seven real estate transactions through a trust account linked to her professional corporation and not through KMB’s trust account, including one transaction relating to CCI.”
Details in the ruling for one complaint indicate that Harrison acted for “JC” on a $550,000 mortgage from CCI at 25 percent interest. JC was retired, single and born in 1951, with a yearly fixed income of $49,000 and a $100,000 secured line of credit.
Between May 11, 2016, and July 13, 2021, nine NOSIs were registered on title to JC’s property totalling approximately $86,000, along with two micro-mortgages totalling $75,795. The JC mortgage was originally $400,000, later revised to $550,000.
The terms included:
- 25 percent interest; a one-year fixed term at with the principal became due; interest to be repaid from mortgage proceeds;
- a lender fee of $27,000 and broker fee of $11,000;
- no major or minor renovations without consent;
- a renewal clause which would renew the mortgage at the lender’s discretion with a lender fee of 10 percent and broker fee of three percent of the outstanding balance
The cost of borrowing was $177,999.96 with an effective annual percentage rate of 32.364 percent.
JC eventually defaulted on the mortgage, and in November 2022, an action was commenced against JC for possession of her property. JC has defended the action and filed a counterclaim against Harrison and the others who participated.
As in the other investigations, Harrison met with JC by video conference to have her sign closing documents, but the video does not appear to record the full meeting. There were no notes to file.
Lawyer says she was on limited retainer to deal with already-signed contracts
In her defence, Harrison argued that, even though the files have signed acknowledgements of legal representation by the client borrowers indicating that she explained the nature of the document and the possibility of enforcement proceedings on the mortgage, none contain a retainer agreement.
Harrison also maintains that it was not her role to give an opinion on the terms of the mortgages because she was on a limited retainer, with the borrowers having already signed the mortgage commitments when they retained her.
Harrison also says that, in her view, each mortgage was a done deal, and she merely “papered” the transactions.
As for her professional corporation and its related trust account, Harrison says she set these up in anticipation of either leaving KMB or becoming an associate partner of the firm.
Harrison is a party to civil litigation stemming from several of the mortgage transactions at issue. The decision says that “she maintains that the regulatory purpose of the law society is being subverted to advance the claims of the civil litigants and that the [society] even appears to be using its authority to assist them.”
She believes that “the tribunal’s public interest jurisdiction should not be exercised for the collateral purpose of advancing these claims.” However, she did not seek a stay of proceedings for abuse of process.
However, tribunal chair Marshall wrote that any impact on the various civil proceedings stemming from the law society investigation and this motion “are incidental to the regulatory process.”
He added Harrison has not demonstrated that the society, exercising its regulatory authority, has acted to assist the civil litigants who have made civil claims.
While not explicitly suggesting abuse of process, the tribunal decision noted: “The high burden that would have to be overcome to establish abuse of process.”
