Mortgage Fraud, the Land Titles Act and Due Diligence: The Rabi v. Rosu Decision

Abstract

Real estate fraud has become a very real threat in Ontario. A product of an increasingly common crime, identity theft, real estate fraud occurs when homeowners' titles are fraudulently transferred, and mortgages are registered against those titles, all without the homeowners' knowledge or consent. By the time a homeowner discovers the occurrence of the fraudulent purchase, the fraudster has run off with the mortgage funds, leaving two innocent parties, the homeowner and the mortgagee, with a mortgage charge on the property that must be shouldered by one of them. That is precisely what happened in Rabi v. Rosu. While Rabi v. Rosu is a trial court judgment, it is significant for three reasons. First, it circumvented the application of a very similar Ontario Court of Appeal decision, CIBC Mortgages Inc. v. Chan that, under the doctrine of precedent, should have been followed. Second, it determined that the common law will prevail under the Land Titles Act unless a different legislative intention is indicated and that the theory of deferred indefeasibility governs in the Act. Finally, the decision in Rabi v. Rosu imported a concept of due diligence into the Land Titles Act, the implications of which will require money lenders to double check every mortgage transaction on which they sign off in the future. This article discusses the importance of Rabi v. Rosu in the area of mortgage fraud and outlines the most recent amendments to the Land Titles Act.

Keywords: mortgage fraud, real estate fraud, identity theft, Land Titles Act, due diligence, Rabi v Rosu, Lawrence v Wright, CIBC Mortgages Inc v Chan, deferred indefeasibility, Dominion Stores Ltd. v United Trust Co, Bill 152