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mortgagemonies 30 | winter 2015 mbabc.ca MortgageBroker BY Ray Basi Director of PolicY anD eDucation When a notary misappropriates mortgage monies, whose money is lost? Lose the Battle, Win the War The noTary for The borrower misappropriates the mortgage money. Whose money is lost? Who will be out money? e answers to the two questions can be different. You may lose the battle (i.e., the court can decide it was your money that was taken) but you may win the war (insurance may restore all money you lost because of the misappropriation). The scenario As the lender, you hire a notary to handle your interests in a straightforward mortgage refinancing transaction. e borrower is going to replace the existing first mortgage with a new first mortgage from you. e borrower hires a separate notary. Your instruction letter directs your notary to obtain good and marketable title, free and clear of all judgments, executions, charges and liens except for your mortgage (as a valid first charge against the borrower's property). On closing day, the mortgage is submitted for registration to the Land Title Office and the title is as expected. Consistent with general practice, with written undertakings from the notary for the borrower, and with the irrevocable authority and direction to pay signed by the borrower, your notary sends the mortgage money to the notary for the borrower. e undertakings include that the notary for the borrower will see to the discharge of the existing mortgage. Unfortunately the notary for the borrower, rather than paying out the existing mortgage, misappropriates the monies. e monies do not resurface. The battle e borrower starts a court action to ask the court to order that the new mortgage be struck from title. e borrower argues she never controlled or received the mortgage proceeds so your mortgage is invalid and should be discharged from title. You defend the court action. You argue your notary is your agent and the other notary is the agent for the borrower. Your agent provided the mortgage proceeds to the agent for the borrower (as the borrower directed) and that is as good as the funds having been provided to the borrower herself. You argue your mortgage is a valid charge against title. Whose money did the notary take? e Supreme Court of British Columbia on November 20, 2014 in Lin v. CIBC Mortgages Inc., 2014 BCSC 2179 on similar facts ruled against the lender. e Court reasoned that: • e lender's notary held the mortgage pursuant to an instruction letter from the lender. • When the funds were released to the notary for the borrower, they were sent on the conditions imposed by the lender (i.e., to register the mortgage as a first mortgage). • Until the condition was met, the funds belonged to the lender. is was so even aer the funds had been delivered to the 30 | winter 2015 mbabc.ca MortgageBroker

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