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clients across Canada since 1987

Oct 11, 2021


In the previous Post LIX I continued a review of mortgage statements, and revealed how a loan facility that is omitted in error from a discharge statement affects the lender (by continuing to allow the lender to collect the debt owing under that loan facility, but on an unsecured basis). This post zeros in on one such mortgagor who tried to take advantage of a mistake in a discharge statement, much to her chagrin.

Mrs. X was refinancing her home. Her first mortgage secured both a mortgage loan and a line of credit facility. I acted for the first mortgagee, who gave a discharge statement to Mrs. X’s lawyer which included the mortgage loan facility, but forgot to include the line of credit.

When the refinancing was completed, Mrs. X’s lawyer should have used the new mortgage proceeds to repay my client’s first mortgage loan and to repay my client’s line of credit also secured by the home. But because the line of credit was not on the discharge statement, it was not repaid. Mrs. X just took the extra loan proceeds and gave them to her husband and to a few other relatives.

The bank discovered its error right away. I was retained to collect the line of credit, but of course the funds were no longer in Mrs. X’s lawyer's trust account and she truthfully said that she no longer had these excess funds (as she had given them away) – and so she could not (refused to) repay the bank’s now unsecured line of credit.

My client went on the war path, because Mrs. X knew that she had committed a fraud. We petitioned Mrs X into bankruptcy, and then, using the auspices of sections 95 and 96 of the Bankruptcy and Insolvency Act, we sued Mrs. X's husband and each of her other relatives who received the extra refinancing proceeds from Mrs. X (that ought to have been used to repay the bank’s line of credit).

Mrs. X’s husband and relatives were required to hire a lawyer and ultimately, after paying significant legal fees, had to repay the ‘stolen’ money to my client, the former first mortgagee who made the error on the discharge statement.

Not all frauds of this nature end so poorly for the fraudster (Mrs. X). But in this case, justice was served.

Next blog will look at how the privacy legislation (PIPEDA) affects mortgage statements. As always, this blog is intended for information purposes only. It is not legal advice and cannot be relied on as such. Nor is it a substitute for hiring your own legal counsel, who will be an essential member of your power of sale and mortgage default team. And lastly, this blog is just my opinion. I reserve the right to change my mind. And I reserve the right to be wrong.

Be well and stay healthy.