Mortgage Fraud

We like to think in this untrustworthy world that if you can trust anyone, you can trust your family, right?  Mr and Mrs Keri (not their real name) certainly thought they could trust their son, Rodney … but how wrong they were.  This article looks at a case that went all the way to the Supreme Court, involving families, forgery, and a finance company.

Rodney wanted to buy shares in a business.  He approached an Auckland-based finance company for a $245,000 loan.  The finance company agreed to lend the money on the understanding that Rodney's parents would provide security for the loan in the form of a mortgage over their family home.  The finance company prepared the documents, with Rodney doing the leg work.  He got his Dad to sign, but he knew there was no chance his Mum would sign, so he decided to forge her signature.

Almost inevitably, the business failed, and the finance company came looking for money.  Mrs Keri refused, and went to Court to try to get the mortgage taken off the title to her property.  Interestingly – and probably surprisingly for some – proving that Rodney had forged his Mum's signature wasn't enough: Mrs Keri also had to prove that Rodney was acting on behalf of the finance company when he forged her signature.

So, the issue was, what constituted "acting on behalf of" the finance company?  Did Mrs Keri have to show that the finance company knew Rodney forged her signature?

The finance company argued that the mortgage should stay because:

• they didn't know Rodney forged the signature, and
• Rodney was acting in his own interests when he forged the signature, not theirs.

The Supreme Court found:

• the finance company left it to Rodney to get his parents' signature,
• forgery was a risk they could have avoided if they had sent their own person in to get the signatures,
• the finance company would not have obtained a registered mortgage without the forgery, and
• it was therefore reasonable to treat Rodney's forgery as being done when he was acting on behalf of the finance company.

Thankfully, Mrs Keri was successful in this case.  But she spent many years and a lot of money fighting the finance company, which kept appealing even though it lost three times!  The lessons for the finance companies are these:

• ensure you use your own staff,
• never leave it to the person who wants the money to do your work, and
• genuinely encourage people to get independent advice before signing.

And everyone else?  Don't sign anything without getting legal advice - it costs a lot less than the cost of NOT getting it!

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This article is brought to you by Colette Mackenzie of Gibson Sheat Lawyers and its subsidiary The Conveyancing Company, specialists in property law, mortgage broking, refinancing, buying and selling residential or commercial property, and subdivision.

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