Mortgage Broker

48 | winter 2016 cmba-achc.ca CMB MAGAZINE legalease A RECENT CASE FROM THE BC COURT OF APPEAL may lead to lenders facing a greater risk of losing their mortgage funds, paying significantly higher fees for mortgage conveyancing, and paying greater insurance premiums. All of this because a notary absconded with approximately $8 million from files concerning 41 clients. e 2015 BC Court of Appeal decision in Lin v. CIBC Mortgages Inc. is part of the fallout of the notary's wrongdoing. What happened? CIBC was funding a mortgage for borrowers who were refinancing their home. Aer submitting the mortgage for registration and in accordance with the borrowers' signed authorization, CIBC's notary sent the mortgage funds to the borrowers' notary. e funds were sent on the undertaking from the borrowers' notary to pay out the existing first mortgage. e notary did not pay out the mortgage but instead absconded with almost all of the funds. e borrowers claimed the mortgage was invalid as they had not been provided with the mortgage funds. CIBC claimed the mortgage had been funded, as the mortgage funds were provided to the borrower's agent (the absconding notary). Was the mortgage funded? Funding has to have occurred for a mortgage to be valid. e Court said that funding had not occurred as the funds were provided to the borrowers' notary with conditions attached. Until the conditions were satisfied (the most important being the undertaking regarding paying out the first mortgage), the funds remained the property of CIBC. Until the conditions were satisfied, the borrowers had no right to use, call for, or direct the funds. e conditions were never satisfied by the absconding notary and so the funds never became the property of the borrowers. Accordingly, the mortgage was not funded, was invalid, and ordered to be removed from title. e notary had absconded not with the borrowers' but rather with the lender's funds. Some possible implications e Lin case has considerable possible implications for lenders. Lenders may want their own conveyancer (notary or lawyer) performing more of the conveyancing process (such as seeing to the discharge of existing mortgages) before releasing funds to the borrower's conveyancer. is added work can result in the lender receiving a higher legal bill from his or her conveyancer. Lenders (and brokers) will want to anticipate these higher legal costs in preparing cost of borrowing disclosure statements. Lenders will want to consider pricing mortgage transactions by accounting for the greater costs (such as increased legal bills) and risks of the conveyancing process (such as losing the investment if the borrower's conveyancer absconds with the mortgage funds). Lenders may want to budget for the possibility of higher insurance premiums if insurers are made to cover losses arising from absconding conveyancers. e Court did mention that it was only deciding that the mortgage was invalid. It remained open for the lender to claim damages against the absconding notary, the notary's insurance fund, or the borrowers as the principals of the absconding notary. e possibility of such damages would undoubtedly be welcomed by the lender, but obtaining them involves considerable time and delay without any court-ordered payment being secured by a mortgage. It seems lenders will have to make some adjustments, regardless. Lender's Lament Aer one B.C. notary took off with $8 million in mortgage funds, all lenders would be wise to reevaluate how they do business BY RAY BASI, LL.B. STAFF, EDUCATION AND POLICY REVIEW

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