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Posted on October 1, 2010 | Posted in Collections

When a fraudster strikes, sometimes only one victim suffers (e.g. a gullible person who gives the fraudster money because the fraudster promises an abnormally high return). Often, while there may be only one victim, the victim can look for compensation from other people. In mortgage and land frauds, the victim may look for compensation from the mortgagee and the lawyer involved in the transaction. One such situation arose in Isaacs v. Royal Bank of Canada, a 2010 decision of the Ontario Superior Court of Justice.

The Lure 

The facts are surreal. The victim was sitting in a Tim Horton’s chatting with her now ex-husband about the dismal state of their finances. A man sitting next to them overheard, told them he could help, and gave them his phone number.

Husband took the bait and called the fraudster. The fraudster told him a story of someone who wanted to buy a house, but had trouble because of a poor credit rating. The prospective purchaser would pay $4,000 to the person who would merely co-sign his mortgage. This, of course, would only be for 6 months, at which point the guarantor would be off the mortgage. This seemed like easy money and the victim, not her husband, decided to sign as guarantor.

A mortgage broker called the victim. The victim provided her with personal and financial information. However, the victim had second thoughts, called the broker back, and reneged. The broker sweetened the payment from $4,000 to $6,000. Greed prevailed over caution and the victim was back in the game.

The broker sent the victim to the bank. She met with a mortgage specialist, gave him ID, and signed some bank forms, including a mortgage application. The application indicated that she was to be an owner of the property along with the fraudster. The victim did not read the documents or tell the mortgage officer about the $6,000 she was being paid.

The mortgage broker then sent the victim to a lawyer’s office. There, she signed more documents, which she did not read. She met only with a secretary and was given no explanation of the transaction. Then again, she never asked for an explanation. The documents outlined the transaction completely, including the fact that the victim was to be a co-owner of the property.

Based on all the documents, the bank approved the mortgage and the transaction was completed. The victim was now the proud owner of a 50% interest in the property and fully liable on the mortgage.

The Scam

We are not sure how the fraudster made off with the proceeds. It had something to do with the property being flipped for an exorbitantly high price, far greater than its actual value.

The mortgage broker, realtor, and lawyer involved all received exceptionally large fees. The fraudster vanished with whatever ill-gotten gains he managed to pilfer. The bank sold the property for a $95,000 loss, and the Law Society suspended the lawyer, who was also facing further disciplinary proceedings.

The bank sought to recover the shortfall from the victim; the victim claimed that the bank should have caught the fraud and therefore should absorb the loss.

No Knowledge 

The judge first dealt with the victim’s claim of ignorance. He noted that she did not know about the transaction because she could not be bothered to read the documents. Not only did she not read the documents, she did not even bestir herself to ask for an explanation of them – from either the lawyer or the bank.

Conversely, all the bank knew was that someone had signed normal documents for a standard mortgage transaction. A review of the documents would not reveal any fraud to the bank.

Accordingly, the judge held that as between the victim and the bank, the victim was in the best position to realise that something was amiss.


The judge also noted that this was not a situation with two innocent parties. The victim was not innocent. She assisted the fraudsters in perpetrating the fraud. Although she did not know the exact fraudulent nature of the transaction, she knew that the bank would not lend to the fraudster on his credit alone; she exacted a payment of $6,000 for the use of her credit; she did not tell the bank or the lawyer of her deal; and she knew she was a guarantor for the six months during which the mortgage went into default. As the judge put it, “She took the risk, and she got stung.”


The victim proffered a number of defences to the bank’s claim. The judge dealt with each in turn.

1.   The victim and the bank were not two innocent parties. The bank did nothing wrong; the victim was not innocent.

2.   The lawyer’s misdeeds did not bind the bank any more than they bound the victim. He was equally the agent of the bank and the victim and his knowledge, such as it was, was their knowledge. If he knew that the property was being flipped, so did the victim. In any case, there was no evidence that the lawyer misrepresented the deal to the victim. He made no representations at all. If he did not protect her properly, that was between the two of them.

3.   The bank owed no fiduciary duty to the victim. The bank had no special knowledge and there was no special relationship between the victim and the bank; it was an ordinary debtor-creditor relationship.

4.   The bank had no duty to obtain an appraisal or to follow its own lending guidelines; these guidelines were for the bank’s protection, not the victim’s.

5.   This was not a situation in which a fraudster managed to transfer title or obtain a mortgage on a person’s property without any knowledge of that person. The victim knew what was going on and, by her actions, knowingly or not, assisted the fraudster. 

The judge held the victim liable to pay the shortfall to the bank.


Based on these facts, although the victim has some sympathy, she was the author of her own misfortune. What if, instead of the victim receiving a payment for her involvement, the fraudster was the husband, the victim was unsophisticated, and the victim signed the documents, albeit without reading or understanding them, because her husband, who was in charge of the family finances, told her to do so? Further, what if the bank never met the wife and allowed the husband to get the wife’s signature at their home? Slowly, as more facts pile up, the bank becomes more culpable and the wife much less so. As is often the case, the outcome of a lawsuit depends entirely on the facts and the smell test that the judge applies.


The mortgage broker and the lawyer were not parties to the action. We do not know why.


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