The short answer
If a fraudster impersonates the owner and grants you a mortgage, your mortgage may be void, even if it is registered and you acted in good faith. That rule applies in Ontario, British Columbia and across the US. Private lenders, who often move fast and lend on equity rather than borrower credit, are prime targets. The cure is identity verification, independent counsel and title insurance.
Canada: deferred indefeasibility
Torrens-style land titles systems promise that the register is conclusive. But Canadian courts protect true owners against forged instruments through the principle of deferred indefeasibility: the person who deals directly with the fraudster does not get good title; a later innocent purchaser who relies on the register may.
Ontario. In Lawrence v. Wright, 2007 ONCA 74, an impostor posing as the owner transferred the property to a fraudster, who then mortgaged it to a lender. The Court of Appeal held the owner was entitled to have the fraudulent mortgage removed from title. The lender, as the party that dealt with the fraudster, was in the best position to detect the fraud and bore the loss. Ontario's Land Titles Act was amended in 2006 to confirm that a fraudulent instrument is void and that registration does not make it effective (s. 78(4.1)). An innocent party who loses out may in some cases claim against the Land Titles Assurance Fund.
British Columbia. In Gill v. Bucholtz, 2009 BCCA 137, the BC Court of Appeal held that a mortgagee who took a mortgage from someone who had obtained title by forgery did not get the benefit of indefeasibility under section 25.1 of the Land Title Act. The forged mortgage could be canceled.
United States: a forged deed is void
Under the general US rule, a forged deed or mortgage is void and conveys nothing, even to a bona fide purchaser or lender for value. Recording does not cure a forgery. The loss falls on whoever dealt with the forger, which is why lender's title insurance, covering forgery and impersonation, is essential (Article 10).
Fraud patterns to watch
| Pattern | How it works | Red flags |
|---|---|---|
| Owner impersonation | Fraudster poses as owner of an unencumbered or lightly mortgaged property and borrows against it | Vacant land or rental property; absentee or elderly owner; urgency; borrower avoids in-person meetings |
| Seller impersonation | Fraudster "sells" a property they do not own, often vacant land | Below-market price; remote closing; seller cannot be reached through known contacts |
| Wire fraud (business email compromise) | Criminal intercepts emails and sends fake payout or wiring instructions | Last-minute change of bank details; emails from slightly altered addresses |
| Straw borrower and inflated value | Related parties inflate value through a flip or fake appraisal | Rapid recent resale at a much lower price; appraiser chosen by borrower |
| Synthetic or stolen ID | Borrower uses forged ID or a real person's stolen identity | Inconsistent documents; new email and phone; credit file with no history |
Controls that work on both sides of the border
- Verify identity properly. Use methods prescribed by FINTRAC (Article 7) and, where possible, meet the borrower in person or by verified video with government ID. In Ontario, lawyers must also follow the Law Society's client identification and verification rules.
- Confirm ownership independently. Compare the borrower to the registered owner, prior transfer documents and property tax records. Contact the owner at an address from the public record, not from the borrower.
- Use independent counsel. Insist that the borrower's lawyer or notary is independently verified, not introduced by the borrower at the last minute.
- Insure the title. Obtain lender's title insurance covering forgery and impersonation.
- Lock down wires. Confirm wiring instructions by phone to a known number before funding or paying out, and never accept changes by email alone.
- Slow down when pushed. Urgency is the fraudster's best tool.
What to do if fraud is discovered
Act immediately: notify your bank to recall wires, notify your title insurer, contact counsel to protect your position on title, and report to police. In the US, report wire fraud to the FBI's Internet Crime Complaint Center (IC3); in Canada, report to local police and the Canadian Anti-Fraud Center. FINTRAC reporting entities must also consider whether a suspicious transaction report is required.
Frequently asked questions
Frequently asked questions
Is a mortgage from a fraudster valid if it is registered?
Generally no. In Ontario and BC, a lender that dealt directly with the fraudster usually does not get good title (Lawrence v. Wright; Gill v. Bucholtz). In the US, a forged mortgage is void.
What is deferred indefeasibility?
The rule that the party who deals with a fraudster does not get indefeasible title, though a later innocent party relying on the register may.
Does title insurance cover forgery?
Lender's title policies generally cover loss from forgery and impersonation, subject to their terms and exclusions.
How can lenders prevent wire fraud at closing?
Verify all payment instructions by phone to a known number and refuse email-only changes.
This content is general information for industry professionals and is not legal, tax or financial advice. Laws change and apply differently to each transaction; obtain advice from qualified counsel in each relevant jurisdiction. Legal counsel to the Cross-Border Private Lenders Association: Jasmine Daya & Co. Questions: info@cbpla.com