PRIVATE MORTGAGE FRAUD: NODEL V. STEWART TITLE GUARANTY COMPANY

Perhaps one of the most significant indicators of a fraudulent mortgage transaction is when lawyers acting for borrowers receive a direction to pay mortgage proceeds to unrelated third parties. Lawyers have professional obligations under the Rules of Professional Conduct not to assist their clients in committing fraud, and this was illustrated in the case of Nodel v. Stewart Title Guaranty Company, 2017 ONSC 890. The facts of the case are as follows:

Mr. C, who was the true owner of the property, was denied insurance coverage on a private lender transaction that involved a fraudulent mortgage placed on title by an imposter pretending to be the registered owner. The private lender’s lawyer transferred the mortgage funds to the borrower’s lawyer, in trust, and then the borrower’s lawyer disbursed the funds to unrelated third parties, not to Mr. C. The reason that the insurance company denied the claim by the real owner was that the policy contained an exception which stated that if the mortgage funds were paid to anyone other than the registered owner, or other acceptable entities, then coverage would be denied.

The insurance company ultimately lost this case due to specific wording used in the policy. The judge was of the view that the word “paid” allowed the funds to be paid to the borrower’s lawyer in trust and that the exception should have indicated that cheques must be made payable to a listed approved party or be wired to them directly. The case is under appeal; however, lawyers should reflect on the original intention of the private lender exception which is to remove coverage for mortgage fraud if the proceeds of the mortgage are disbursed to unapproved third parties.

Most title insurance companies do not consider that providing mortgage proceeds to the borrower’s lawyer in trust is the same as providing those proceeds to the borrower. More importantly, if you intend to pay the mortgage proceeds to the borrower’s lawyer in trust, determine whether the mortgage proceeds are being paid to anyone other than an existing lender or to the borrower directly and obtain an undertaking from the borrower’s lawyer to pay the proceeds of the mortgage only to the acceptable parties as per whatever title insurance policy you happen to purchase.

When selecting a competent lawyer to handle your purchase or sale file, choose a professional who maintains a track record of displaying high standards of practice. Contact us today, should you require reliable real estate legal services or if you have any questions.

About the Author

Nabeel Naqvi

Nabeel obtained his Bachelor of Arts at York University in Philosophy. He then obtained his Juris Doctor from Bond University, in Queensland Australia. Nabeel specializes in secured lending and real estate transactions. He also focuses on drafting essential commercial agreements, as well as acting for entrepreneurs and businesses in the establishment, organization, and financing of their operations. Prior to starting his own firm in 2017, he specialized in business development meeting sophisticated e-business needs for clients ranging from Fortune 500 companies to emerging dot.coms.

By |November 5th, 2017|Real Estate|0 Comments

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