Obtaining Credit By False Representation #257

By Gerry Neely
B.A., LL.B.

Column #77 discussed an attempt to obtain financing through the use of the Contract of Purchase and Sale, one between the parties and one for the mortgage company, the latter agreement for a higher price and larger down payment than the parties agreed upon. It is a criminal offense to attempt to obtain credit by making a false statement or representation, knowing it to be false, with the intention that it should be relied upon by a financial institution from whom a loan is sought. The parties to the contract entered a plea of guilty and were fined, or in default of payment, were subject to imprisonment for two years.

An Ontario transaction produced a somewhat similar scheme. The owners of a home, who wished to purchase a smaller home, willingly cooperated with their real estate agent when he proposed a scheme which resulted in inflating the value of the home they sold and the home they purchased. The purpose was to give them an apparent equity in their own home and an apparently greater value of the home they were purchasing to enable them to obtain a larger high ratio first mortgage.

While the financing was first approved on the basis of the price ostensibly to be paid for their new home, a few days before closing the mortgage was reduced, no doubt as a result of an appraisal at a lower price. This left them short $9,800, which they obtained by way of a second mortgage, raised by the real estate agent from funds either provided by him, or by someone connected to him.

Remarkably the sellers, as co-conspirators, in a failed attempt to make it easier to fraudulently obtain money from CMHC, sued the agent and the lawyer who had acted on their behalf. They claimed damages for the amount of the shortfall, plus an extra $3,000 paid in sale commissions because of the inflated values. They attempted to pass themselves off as, "unwitting and ignorant simple folk who were duped at every turn by the real estate agent and the lawyer." They lost because it was evident, as the judge said, that they were part of an illegal and immoral scheme to defraud CMHC.

Allegations of criminal conduct were made in both directions and the reluctance of the defendants to provide evidence indicated to the judge that criminal charges had been laid.¹

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The requirements for access to lots to be created by a subdivision plan often result in a wider roadway than future owners actually need. Where the access may be created by easements or rights-of-way, section 31 of the Property Law Act gives a judge the authority to modify or cancel the easement.

This section was considered in a case involving three side-by-side lots in a bare lot strata plan, each of which had a 10 foot panhandle to a street. The owners of each lot also had a right-of-way over the other two panhandles, creating a 30 foot right-of-way. The developer had built a 13 foot brick roadway, more or less in the centre of the right-of-way, a roadway that was adequate to meet the vehicle access needs of the owners of the three lots.

One owner, part of whose lot bordered the west side of the right-of-way, wanted to landscape the eight foot wide untravelled portion of the panhandle between her lot and the brick roadway. This was opposed by another owner who said that since the mutual rights-of-way gave that owner an easement over the whole of the right-of-way, landscaping the eight foot strip would interfere with his potential use of the right-of-way. This argument was supported by a clause in the easement agreement, which stated that no party was to do anything that would interfere with the right of access given to the other parties.

Section 31 provides three circumstances which may justify the modification of an easement or right-of-way.

1. changes in the character of the land or neigbbourhood;

2. the restriction of a reasonable use of the land, which is without practical benefit to others entitled to the benefit;

3. the absence of harm to someone who has the benefit of the easement.

	1.	49 R.P.R. (2d), p. 59.
	2.	Babie v. Bal, B.C.S.C., Reasons for judgment, June 4, 1996.

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