Double Interims – A “No, No” #77
By Gerry Neely
Despite the creative lending practices of a few financial institutions, such as the Crown Trust and the Canadian Commercial Bank, licensees rightly perceive that the majority of mortgage lending institutions insist that the borrower must meet fairly tough financial and market value requirements before a mortgage loan will be approved. Some licensees must even believe that these requirements are unrealistically difficult to meet, because from time to time schemes resurface that are intended to mislead a mortgage company into granting a loan that exceeds the ratio of market price to mortgage amount.
These schemes have included double interim agreements, one as between the parties and one for the mortgage company. The latter agreement provides for a higher price and a larger down payment than the parties actually agreed upon. That is not only unethical and illegal, but if it succeeds in inducing the mortgage company to lend more than would otherwise have been obtained, it is also a criminal offence.
In a prosecution brought in Newfoundland, two accused were charged with obtaining credit by falsely stating that the purchase price of the house which was to be the security of the loan was $13,500.00 when in fact it was only $9,500.00. The accused pleaded not guilty, but admitted that they had falsely stated in the application for their mortgage that the purchase price was $13,500.00 plus $3,000.00 for renovations. Their defence was that the mortgage company was not mislead by this misrepresentation, because in an appraisal obtained by the mortgage company, it showed the fair market value of the property as being $18,500.00.
That appeared to be a good defence, upon the argument that the mortgage company relied upon the appraisal and not the misrepresentation.
However the evidence of the mortgage manager was that in making a loan, the mortgage company took the lower of purchaser price or appraised fair market value. The appraisal that was carried out then was a precautionary measure to satisfy itself that it was getting adequate security. The amount advanced was a percentage of the misrepresented price of $13,500.00 plus $3,000.00 for the intended renovations.
The court held that the false representation of the purchase price was the inducement which led the mortgage company to lend approximately $4,000.00 more than it would otherwise have done had it known the true sale price.
The accused were found guilty of this offence and pleaded guilty to two others. One accused was fined $3,000.00 or in default two years, the other $2,200.00 or in default seventeen months, both in 1977 dollars. These accused appeared to be principals rather than agents, but the offence would be committed by a licensee who knowingly assisted a principal to obtain credit by a false representation made with intent to defraud.1
|1.||Regina v. Dyke and Dyke, 33 C.C.C. (2d) 1977, p.557.|
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