Mortgage Broker

Summer 2019

Mortgage Broker is the magazine of the Canadian Mortgage Brokers Association and showcases the multi-billion dollar mortgage-broking industry to all levels of government, associated organizations and other interested individuals.

Issue link:

Contents of this Issue


Page 31 of 47

32 | summer 2019 CMB MAGAZINE legalease e sale of the property le a $200,000 deficiency owing. Pang settled with the lender by agreeing to pay $100,000. He wanted to recover this amount from others involved in the fraud. Having discontinued the case against or settled with the broker's husband and the lawyer, he continued the case against the broker and her mother. DECISION Were the broker and her mother part of the fraud on the lender? e broker and her mother were part of the fraud inflicted on the lender. False representations were made to the lender about Pang's financial situation, causing it to grant the mortgage and resulting in a loss to the lender. e broker obtained financial information from Pang and, in furtherance of the scheme, falsely advised him that he qualified for a mortgage. She arranged his attendance at the lawyer's office and at the bank. Pang had no dealings with the bank until he was escorted there to sign the mortgage. e broker was complicit in the fraud perpetrated on the bank. e broker's mother was involved in the execution of the residential real estate purchase contract, and the transfer of the property to Pang. She was also clearly part of the scheme, as evidenced by her providing reimbursements to Pang to cover the mortgage payments. If the broker's husband was the mastermind of the scheme, as claimed by the broker and her mother, the broker and her mother knew what they were doing involving Pang and aiding in the fraud. ey were complicit in the fraud. Did the broker and her mother commit fraud against Pang? e broker and her mother defrauded Pang. e broker misrepresented the scheme to Pang, in that he was advised he qualified for a mortgage and was not advised of the fraudulent employment and income information being provided to the lender. e mother was involved in misrepresenting the nature of the scheme to Pang, both by becoming Pang's main contact while the relevant documents were executed and by providing cheques to him aer the fraud was perpetrated. Because: n the broker and her mother made false representations to Pang; n the false representations were made either knowingly, or recklessly, careless whether they were the truth; n the false representations induced Pang to act; and n Pang suffered a loss from his actions, the broker and her mother committed civil fraud against Pang. Does Pang's conduct bar his claim? A person cannot succeed on a claim that depends at its core on an illegal act of the claimant, if providing a remedy to the claimant would compromise the integrity of the legal system. e state of mind and moral culpability of the claimant is the central issue, and four possibilities exist in the typical mortgage fraud case: n e claimant was intentionally fraudulent, in that he intended to deceive the bank. n While not intentionally fraudulent, he was wilfully blind, in that he knew there was something suspicious going on but did not inquire because he did not want to know the likely answer. Legally this is the equivalent of fraud. n He was negligent, in that the circumstance should have raised concern, and he did not respond to the circumstances as would a reasonable person. n He was completely innocent and was a mere victim or dupe. e second and third possibilities are relevant in this case. Pang had not made misrepresentations in a mortgage application to the bank. Someone else submitted a mortgage application under his name containing false information about his employment and salary. He had not signed the application nor the residential real estate purchase contract. He provided the broker with his correct financial information and had no part in what was eventually provided to the lender. Pang signed only unidentified documents in the lawyer's office (presumably the transfer documents) and the mortgage at the bank, aer the mortgage had been approved on fraudulent information. Pang knew the mortgage proceeds would benefit someone who did not qualify for a mortgage. at should have raised his concerns, but the fact that he did not respond appropriately to that concern does not make his negligent conduct fraudulent. He did not know that the mortgage application would contain fraudulent information about his financial circumstances and had no reason to suspect that that would be the case, given his interaction with the broker and her mother. Accordingly, Pang was negligent, rather than fraudulent. Being negligent does not bar him from recovering damages from the broker and her mother. Had Pang been informed of the full state of affairs by the broker and the mother, he would not have agreed to participate in the scheme. e broker and her mother were ordered to indemnify Pang for $100,000. TAKEAWAY e takeaway is straightforward – do not commit fraud. If you do, you risk regulatory, criminal and significant civil consequences. Remember that today's accomplice in fraud can be tomorrow's claimant in court. A person cannot succeed on a claim that depends at its core upon an illegal act of the claimant, if providing a remedy to the claimant would compromise the integrity of the legal system."

Articles in this issue

Links on this page

Archives of this issue

view archives of Mortgage Broker - Summer 2019