What to do after falling victim to mortgage fraud

As featured on CondoBusiness 

The first part of this two-article series on mortgage fraud outlined two types of real estate fraud on the rise and seven practical tips for condo owners to protect themselves from mortgage schemes. What if you do become a victim? Here are some legal remedies and next steps when reclaiming the interest in your home.

Picture a scenario in which you receive a Notice of Sale from an apparent mortgagee of your condominium. The Notice of Sale states that your mortgage (which you know nothing about) is in default, and the mortgagee will sell your condo to recover the mortgage debt if payment of the full amount of the mortgage, including accrued interest, penalties and other exorbitant fees are not paid within 35 days. You have never even heard of or met the mortgagee and you thought your mortgage was in good standing.

This is the stuff of nightmares for many first-time homeowners who may have used their life savings to purchase their first condominium. If you do find yourself in this nightmare scenario, here is what you can do next to try and reclaim this interest in your home.

Consult with a commercial litigation lawyer immediately, preferably a lawyer with real estate dispute and mortgage fraud experience. The lawyer will search the Property Identification Number (PIN) confirming whether the subject mortgage has, in fact, been registered on title to the property and will also identify precisely what other mortgages are registered on title to the property to see if there are any that you do not recognize.

Your lawyer can also get a copy of the mortgage document which will identify the face value of the mortgage, the identity of the mortgagee, and the law firm that was responsible for registering the mortgage on title to the property.

From there, your lawyer can contact that law firm and request the mortgage file, including the copies of the mortgage documents that were used to register the mortgage. This will help your lawyer assess your case and determine whether the mortgage documents were forged, falsified or registered in other fraudulent circumstances. Depending on the evidence, your lawyer should now be able to determine how best to proceed in the short-term to preserve your rights.

If you need to go to court, time is not on your side. These initial steps should be taken as soon as possible. Hopefully by the time you receive the Notice of Sale, you still have the benefit of the full 35-day statutory notice period under the Mortgages Act that the mortgagee is required to provide before exercising any enforcement methods, including proceeding by way of power of sale and potentially selling the property from under you or prejudicing your rights to redeem the mortgage.

Depending on the circumstances of the fraud, your lawyer may seek an injunction in court seeking to restrain the mortgagee from selling the property under power of sale, if advisable, or take other such steps as are necessary under the Land Titles Act to preserve your rights and the status quo, pending determination as to the validity of the mortgage.

If a review of the file indicates that the mortgage documents were forged, you may have recourse outside of court by seeking a hearing before the director of titles to discharge the fraudulent mortgage, pursuant to the Land Titles Act. Under this scenario, the director of titles may freeze the PIN pending the hearing, precluding any dealings with the property until the hearing.

If the mortgage fraud did not involve forgery and you may have been duped into signing mortgage documents unwittingly, you may still have recourse in court to seek a discharge of the mortgage or modification of its terms.

If you succeed with your court case, you will ask the court for an order removing the mortgage from title which you can then file with the Land Registry Office. This will effectively remove the encumbrance from title to your property.

If you are the victim of mortgage fraud involving a mortgage lender and a third-party fraudster, chasing after the fraudster should be secondary to taking immediate steps to try and preserve your rights and prevent your condo from being sold. Ultimately you may succeed in obtaining a civil judgment against the fraudster, but this will take time and cost money. Typically, fraudsters do not keep money in the jurisdiction, and your money as well as their assets likely will be long gone by the time you obtain judgment against them.

So, you may end up with what is known in the litigation business as a “hollow judgment,” in other words, judgement in your favour with no money or assets available to recover.

Therefore, as a practical matter, a civil judgment against the third-party fraudster may not be all that useful unless you have evidence that the mortgagee was also involved or complicit in the fraud.

If you purchased title insurance when you purchased or re-financed your condo, you or your lawyer should file a title insurance application as soon as possible to preserve possible coverage. Title insurers may cover losses sustained by homeowners who are victims of fraud when there is evidence of forgery or falsification of documents.

Lastly, you can report the mortgage fraud to the police as well as the Canadian Anti-Fraud Centre.

Unfortunately, this is mostly a matter of public record and recognition. Unless the fraud is widespread (affecting hundreds of homeowners), the police may not investigate. They have limited resources and may view any isolated incident as a civil matter that does not warrant their involvement.

Even if the police do investigate the fraud and charge or convict the fraudster, this may not assist you in retrieving your money or discharging the mortgage unless the fraudster is willing to make restitution for your damages to be factored into sentencing.

If you have fallen victim to a mortgage fraud, you should consult with an experienced commercial litigator immediately to help you navigate through the very difficult process of trying to discharge the mortgage and regain the equity in your home.