Ownership Protected - Mortgage Fraud and the Land Title Act #432
By Edward L. Wilson
Lawson Lundell LLP
There are very few instances of mortgage fraud involving the registration of fraudulent mortgages in the Land Title Office. A recent Court of Appeal decision addressed the situation where a fraudster forged an owner's signature to a transfer of the owner's lot, transferring title to the fraudster's accomplice -- a Ms. Gill, who registered title in her true name.1 Ms. Gill granted a mortgage to a private lender who advanced Ms. Gill $40,000. Ms. Gill then granted a second mortgage to a corporate lender who advanced $55,000 under their second mortgage. Neither of the mortgagees had knowledge of the fraudulent root of Ms. Gill's title.
The original owner brought an action to have the title to the property restored in his name. However, based on the concept of indefeasibility established in the Land Title Act (the "Act"), once a person has fee simple title to a property registered in their name, that title "is conclusive evidence at law and in equity, as against the Crown and all other persons, that the person named in the title as registered owner is indefeasibly entitled to an estate in fee simple to the land described in the indefeasible title".2 This principle would suggest that Ms. Gill should retain title. However there are exceptions to indefeasibility as set out in section 23 of the Act including an exception providing "the right of a person deprived of land to show fraud, including forgery, in which the registered owner has participated in any degree".3
In this case the new registered owner, Ms. Gill had participated in the fraud and the trial court made an order transferring title back into the name of the original owner relying on the fraud exemption to indefeasibility. The real question was whether or not the two mortgages would continue to charge the title once it was transferred back to the original owner. The trial court found that as Ms. Gill was the registered owner at the time of the granting of the mortgages, she could grant valid mortgages to the two mortgagees and thus those mortgages would remain registered against the title. The original owner would therefore have to make a claim against the Land Title and Survey Authority's (LTSA) assurance fund for compensation. The owner and the LTSA appealed the decision to the Court of Appeal.
The BCCA considered the Act and based on the fraud exception to indefeasibility, confirmed that it was appropriate to transfer the title back to the original owner as Ms. Gill participated in the fraud.4 The Court found however that the indefeasibility principles set out in the Act do not extend to lesser interests such as mortgages. The Court considered other sections of the Act and found that the Act granted lesser protection to charge holders than it did to fee simple owners.5
The court found that under the Act, a mortgage granted by a person who obtained their title by fraud or forgery is invalid and the Act preserves the nemo dat quod non habit rule 66 with respect to charges. So even where a mortgagee has relied on the registered title and dealt bona fide with a non-fictitious registered owner, a mortgagee does not acquire any estate or interest in the lands on registration of their mortgages where they have been granted by a person who had no valid interest in the lands and such mortgages are void.
The decision confirmed the security of fee simple title to land, while increasing the burden on mortgagees to carry out more fulsome due diligence with respect to their borrowers.
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