Lender can't foreclose on B.C. woman's home because mortgage was obtained through fraud

A file photo shows a statue inside the B.C. Supreme Court in Vancouver, B.C.

A B.C. woman has won the right to stay in her home after convincing a judge that the mortgage her son took out on the property was obtained fraudulently.

Winnifred "Winnie" Wai Wai Chan told the B.C. Supreme Court she had no knowledge of the mortgage until the lender attempted to foreclose on her Burnaby condo, and she provided evidence that showed proof of fraud, according to a decision issued this week. 

The matter first came before the court in the form of a foreclosure proceeding brought by lender Xue Le and his company Dawn Creek Mortgage Investment Corporation, Justice John Gibb-Carsley wrote in the decision.

Le and Dawn Creek lent $310,000 to Chan's son Cephas Tien Juen Chan – referred to throughout the decision by his first name, to avoid confusion – in August 2020.

Cephas failed to make payments on the loan, and Le obtained an order for the sale of the property in August 2022. That order was stayed once Chan learned the mortgage existed and alleged fraud.

UNUSUAL OWNERSHIP ARRANGEMENT

While Cephas was the registered owner of the property and his mother's name was not on the title, he still required her permission to take out a mortgage on it. That's because his ownership was part of a trust agreement set up when his parents separated in 1999.

According to Gibb-Carsley's decision, the trust agreement was registered against the title to the property. It prohibited Cephas from selling or encumbering the property without first obtaining either court approval or written consent from both his mother and father.

BC Assessment lists the home as a 915-square-foot condo in a 22-storey building built in 1981. It has two bedrooms and one bathroom, and it was valued at $532,000 as of July 1, 2022.

When Cephas sought the mortgage, he signed a waiver authorizing his lawyer to complete the transaction without the consent of his mother and absolving the lawyer of all liability arising from the matter.

Gibb-Carsley's decision describes the waiver as causing him "some concern," though he notes that the document is not the focus of the case before him.

"It appears to acknowledge that the mortgage is being granted despite some identified risks that the mortgage is drafted in a manner that is in conflict with the terms of the trust agreement," the decision reads.

The transaction went ahead, but the provincial land title office initially refused to register the mortgage because of the trust agreement. The office asked Le's lawyer to provide evidence of consent from both of Cephas' parents.

The court decision indicates that Le's lawyer provided signed consent agreements purporting to be from both Mr. and Ms. Chan, as well as copies of various pieces of identification. The land title office accepted these documents and registered the mortgage.

EVIDENCE OF FRAUD

As part of the court case, both parents swore affidavits claiming they had not consented to Cephas encumbering the property with a mortgage.

Chan's lawyer also had the documents examined by an ICBC fraud investigator, who concluded that the driver's licence purporting to be from Cephas' father was a forgery because the biographical data and photo it included did not match the information on Mr. Chan in ICBC's database.

Similarly, the expert concluded that a driver's licence purporting to belong to a "Ms. Du" – who had allegedly served as a witness to Chan signing the consent form to allow Cephas to get the mortgage – was fake.

This time, the information and photo on the licence was for a different person by a different name, and the photo purporting to be of "Ms. Du" showed her wearing glasses, "which violates the ICBC protocol that glasses must be removed when a photo is taken for a driver’s license," according to the decision.

"I accept as fact that the purported driver’s licences of Mr. Chan and Ms. Du copied and provided to the (land title office) in support of the registration of the mortgage are forgeries," Gibbs-Carsley wrote.

"I also conclude it is more likely than not that the LTO would not have registered the mortgage on title to the property in the absence of those forged documents given the LTO recognized that the property could not be encumbered without complying with the terms of the trust agreement."

RESOLUTION

Both Chan and Le agreed that it is "settled law" that mortgages obtained by fraudulent means are not valid or enforceable, but they disagreed on whether the judge should cancel the mortgage and end the foreclosure proceedings or allow Le to amend his case.

Le argued he should be allowed to amend the case to include Cephas, Cephas' lawyer, his own lawyer and Mr. Chan, in order to further investigate the fraud.

"In my view, his application is not on solid footing," the judge wrote.

"His petition was commenced as a foreclosure petition. By its very nature it is based on a valid mortgage and does not plead fraud, unjust enrichment or other grounds. If the mortgage is based on fraud and thus invalid, in my view the basis for his foreclosure petition is extinguished."

Gibbs-Carsley ordered that the mortgage is invalid and directed the land title office to cancel it. He also ordered the removal of certificates of pending litigation related to the mortgage from the home's title, and awarded court costs to Chan.

"I find that this is an unfortunate case where it appears that both Ms. Chan and Xue Le are victims of a fraud," the judge's decision concludes.

"While the law requires me to favour Ms. Chan’s interests over those of Xue Le, I acknowledge that he appears to have suffered a financial loss due to this fraud. I stress that in dismissing his petition, I am only making a finding that the mortgage security is void, which was the only claim advanced. It may be that, through other proceedings, he is able to recover some or all of his losses related to his loan to Cephas, but that is to be left for another day in another proceeding."