When the Ontario Court of Appeal decided last November that a forged power of
attorney could be used to create a valid mortgage, it fundamentally changed the
law of title registration in Ontario.
It also paved the way for innocent residents like Susan Lawrence to be
evicted from their homes after fraudsters steal their house titles and mortgage
the properties to unsuspecting financial institutions.
Lawrence's story was detailed in the Star this month. Earlier this
year, an identity thief stole the title to her home and mortgaged it to Maple
Trust for almost $300,000. He immediately defaulted on the mortgage and
disappeared with the money, leaving Lawrence facing an eviction action by the
When I spoke to Lawrence in February, she told me the fraudster used the
name Thomas Wright the name of the president and CEO of the Real Estate
Council of Ontario, the licensing body of Ontario's real estate agents. Needless
to say, the real Tom Wright had nothing to do with the Lawrence house.
At my suggestion, Lawrence contacted Toronto lawyer Morris Cooper, who
has extensive experience with title fraud. She was shocked to learn that an
Ontario Court of Appeal decision last November ruled that a fraudulently signed
mortgage in a similar case was perfectly valid and enforceable against an
In the case of Household Realty v. Chan and Liu, the appeal court ruled
that a mortgage was valid and enforceable where the wife signed her husband's
name using a forged power of attorney. Once the mortgage was registered, the
court ruled, it was binding against the innocent husband even if the lender was
not aware of the fraudulent signature at the time the money was advanced.
That decision by Justice Robert Armstrong, writing for a three-judge
panel, turned 100 years of existing Ontario land titles law on its end and
directly paved the way for the nightmare in which Susan Lawrence finds herself.
As well, it may have unintentionally done considerable damage to the real estate
industry and Ontario's taxpayers, according to Toronto real estate lawyer and
mortgage fraud specialist Sidney Troister.
Speaking to 400 lawyers at a Law Society seminar earlier this month,
Troister said that the Household court decision indicates that once a mortgage
or any other document is registered, it is valid regardless of how it was signed
or the identity of the person who signed it. For Susan Lawrence it means that
once the Maple Trust mortgage was registered, her equity in the house
Ultimately, Lawrence has the right to be compensated for her loss from
the Land Titles Assurance Fund, but it would take as much as two years and
perhaps $35,000 in legal fees. In the meantime, legally, she could be evicted
from her house.
Fortunately for her, once the Star's reporter contacted Maple
Trust (now owned by Scotiabank) for comment, it investigated the matter and the
court case against Lawrence was discontinued.
While most lenders appear to be sympathetic to the innocent owners in
similar cases, some, especially private lenders, might not be so ready to hold
off enforcing a mortgage against the next unfortunate victim of title theft.
The likely implications of Household Realty v. Chan are severe, according
to Troister. Owners can lose their land to subsequent, forged registrations. In
addition, lenders can have their valid (legal) mortgages discharged by forgery
and lose their claims to the land.
Virtually all lenders these days take out title insurance. When a
mortgage turns out to be fraudulent, the lenders typically turn to the title
insurers for relatively quick compensation. But in the wake of the Household v.
Chan case, title insurers are likely to say that the courts have ruled forged
mortgages are now valid, and they are not going to pay claims based on the
"valid" (but forged) mortgages.
As a result, the Land Titles Assurance Fund may see an avalanche of new
claims to be paid out of the public purse.
Under the court's new interpretation of the law, lenders like Maple Trust
will have a very difficult public relations problem enforcing mortgages against
innocent owners like Susan Lawrence. But the mortgages stay on title, interest
accrues and the owners are unable to deal with their properties until the matter
If this all sounds bizarre, I can assure you that it is. Many of us
involved in real estate law believe that the Court of Appeal decision is
The day after the Lawrence case became public, the Star reported
that Joseph Cordiano, Ontario's minister of economic development and trade, said
"No one should have to face this horrible situation." He added that it was
unfair for innocent crime victims to have to spend tens of thousands of dollars
to get recourse from the government.
Cordiano wants a review "of the entire system." His comments were echoed
by Government Services Minister Gerry Phillips, NDP finance critic Michael Prue
(himself a victim of a $100,000 credit card fraud), and Progressive Conservative
MPP Tim Hudak.
Unless the Court of Appeal reverses itself in a subsequent case, the only
solution will have to be for the Ontario legislature to change the Land Titles
Act to ensure there will be no more evictions, losses and delays like the ones
faced by Lawrence and others like her.
In the meantime, all Ontario homeowners should seriously consider
"existing owner" title insurance policies if they do not already have
title-insured homes. The policies are available through Ontario real estate
There is virtually no way for a homeowner to prevent theft of his or her
property ownership, but having a title insurance policy will solve the problem
with a minimum of delay and expense. It's a few hundred dollars well spent.
Bob Aaron is a Toronto real estate lawyer. He can be reached by email at firstname.lastname@example.org, phone 416-364-9366 or fax 416-364-3818.
Visit the Toronto Star column archives at http://www.aaron.ca/columns for articles on this and other topics or his main webpage at www.aaron.ca.