2006 BCSC 1126 CMIC Mortgage Investment Corp. v. Virdi et al

Before: The Honourable Madam Justice Gerow

Reasons for Judgment

Counsel for the Plaintiff:	R.D. Lee
Counsel for the Defendant, Bajan Virdi:	D.R. Urquhart
Date and Place of Trial:	June 13 and 14, 2006
	Vancouver, B.C.

[1] CMIC Mortgage Investment Corporation (“CMIC”) loaned Jaspal Virdi the amount of $215,000 which was secured by a mortgage on a commercial property located at 12085 – 103A Avenue, Surrey, B.C. (the “Property”) in June 2003. In February 2004, Jaspal Virdi obtained a second mortgage in the amount of $40,000 from Thomas Markham. Jaspal Virdi defaulted on both mortgages and a petition for foreclosure was initiated by CMIC in December 2004. Bajan Virdi, Jaspal Virdi’s mother, is defending the foreclosure action on the basis that Jaspal Virdi did not have a beneficial interest in the Property. Jaspal Virdi forged a transfer of the legal title of the Property from Bajan Virdi’s name to his name and registered the transfer in the Land Title Office. Bajan Virdi seeks to set aside the mortgage on the basis that CMIC knew or ought to have known that the mortgage was obtained through fraud, and that Jaspal Virdi was not the beneficial owner of the Property. CMIC does not dispute that the transfer was fraudulent, but says that it did not know of the fraud, and that CMIC was entitled to rely on the fact that Jaspal Virdi was the registered owner of the Property. Neither Jaspal Virdi nor Mr. Markham were represented or testified at the trial. Mr. Markham supports CMIC’s position.

[2] The issues are:

1. should CMIC’s suspicions have been aroused based on the information available to it; and

2. if so, did CMIC take the necessary steps to satisfy itself that granting a mortgage was appropriate?

BACKGROUND

[3] The Property was purchased by Bajan Virdi in 2002, and has a legal description of:

PID 009-224-432

Lot 3, Section 30, Block 5 North, Range 2 West, NWD, Plan 23365

[4] On May 5, 2003, a freehold transfer allegedly signed by “Bajan Kaur Virdi” transferring the Property to Jaspal Virdi was registered in the Land Title Office.

[5] On June 3, 2003, Emerald Capital Corporation applied to CMIC for a mortgage on behalf of Jaspal Virdi. On June 4, 2003, CMIC agreed to provide the mortgage.

[6] On June 19, 2003, the mortgage was signed by Jaspal Virdi and witnessed by a lawyer. The mortgage was registered in the Land Title Office, and the funds were advanced through the lawyer’s office.

[7] On September 23, 2004, Jaspal Virdi executed a transfer back to Bajan Virdi. The transfer to Bajan Virdi was registered in the Land Title Office.

[8] The mortgage was defaulted on, and in December 2004 CMIC initiated a petition for foreclosure. Bajan Virdi takes the position that the mortgage should be set aside because CMIC became aware of suspicious circumstances surrounding the title and ought to have done further investigation regarding title. Bajan Virdi says that if CMIC had done further investigations it would have become apparent that the Property was not owned by Jaspal Virdi.

ANALYSIS

[9] The land title system in British Columbia protects a mortgagee who in good faith and for value, relies on the state of title: ss. s. 23 and s. 297 of the Land Title Act, R.S.B.C. 1996, c. 250 (the “LTA”); Canadian Commercial Bank v. Island Realty Investments, [1988] 3 W.W.R. 376 (B.C.C.A.).

[10] The relevant sections of the LTA in force at the time the mortgage was entered into provide that a bona fide purchaser for value can rely on the state of title as shown in the Land Title Office as conclusive evidence of the validity of the title. The relevant portions of the sections provide:

23(2) An indefeasible title, as long as it remains in force and uncancelled, is conclusive evidence at law and in equity, as against the Crown and all other persons, that the person named in the title is indefeasibly entitled to an estate in fee simple to the land described in the indefeasible title, subject to the following:

i) the right of a person to show fraud, including forgery, in which the registered owner, or the person from or through whom the registered owner derived his or her right or title otherwise than in good faith and for value, has participated in any degree.

...

297(1) In this section, "purchaser" means a purchaser in good faith and for valuable consideration and includes a mortgagee or lessee.

(2) Despite anything to the contrary in this Act, no purchaser is subject to a proceeding under this Part in respect of land of which the purchaser is the registered owner, for

(a) recovery of land,

(b) deprivation of land, or

(d) may have been registered as owner through fraud, error or a wrongful act, or

(e) may have derived title from or through a person registered as owner through fraud, error or a wrongful act.

(3) A person taking under a void instrument is not a purchaser and acquires no interest in the land by registration of the instrument.

[11] A mortgage granted by a mortgagor who forged a transfer of title to the property into his name has been found to be a valid charge on the property despite the forgery, as the mortgagee relied on the state of title and was a bona fide purchaser for value: Pik Har Kwan v. Kinsey (1979), 15 B.C.L.R. 31 (S.C.).

[12] In order to have a defence to the proceedings by CMIC, Bajan Virdi must show that CMIC “participated in the fraud” as defined by the case law. In Nicholson v. Riach (1997), 34 B.C.L.R. (3d) 381 (S.C.) participation in a fraud was discussed in the context of four categories:

1. the purchaser participated in the fraud;

2. the purchaser had actual knowledge of the fraud and continued with the transaction;

3. the purchaser had constructive knowledge of the fraud, i.e. in the circumstances the purchaser ought to have known of the fraud; and

4. the purchaser’s suspicions were aroused, and the purchaser did not take adequate steps in the circumstances to investigate the problem.

[13] The onus is on Bajan Virdi to establish that CMIC should have made additional inquiries in the circumstances, and failed to do so: Nicholson at ¶ 17.

[14] Bajan Virdi argues that CMIC’s suspicions were aroused regarding the state of title to the Property, and that CMIC did not take the appropriate steps to investigate its suspicions. Bajan Virdi points to a number of circumstances which put CMIC on notice of that the title was in issue, including:

1. CMIC knew that Jaspal Virdi was intending to use the mortgage proceeds on the mortgage to purchase a Ferrari;

2. Jaspal Virdi had a low credit rating and the only credit cards he had were from department stores;

3. the reference letters provided as proof of income on the Property did not have phone numbers on them;

4. Jaspal Virdi was anxious to get the mortgage proceeds;

5. Peter Miller, the mortgage broker, advised Michael Shivers of CMIC that Jaspal Virdi’s sister had told Mr. Miller that Jaspal Virdi should not be putting a mortgage on the Property.

[15] Mr. Shivers, a director of CMIC, testified at the trial that he was involved in approving the mortgage. He did not have direct dealings with Jaspal Virdi. Rather, Mr. Shivers dealt with Mr. Miller. Both Mr. Shivers and Mr. Miller testified that they knew Jaspal Virdi’s intention was to use the mortgage proceeds to purchase a Ferrari for resale. Both understood that it was a commercial enterprise that Jaspal Virdi was entering into and that was the main reason for a short term, interest only, mortgage. In my view, the fact Jaspal Virdi was intending to purchase an automobile for resale should not have caused concern, or aroused suspicions, on the part of CMIC.

[16] As well, both Mr. Shivers and Mr. Miller testified that they understood that Jaspal Virdi had recently been given the Property by his parents. The fact that he had a low credit limit and few credit cards was attributed to the fact that he was living at home, and had only recently obtained his job and the Property. It is reasonable that Jaspal Virdi’s low credit rating would not concern them in the circumstance.

[17] Mr. Shivers’ evidence is that he relied on Mr. Miller to do the due diligence regarding the income of the Property. The fact that the reference letters, apart from that of Pan Pacific Automotive and Diesel Services Limited, which Jaspal Virdi purportedly worked for and was a shareholder of, did not have telephone numbers did not concern Mr. Shivers because Mr. Miller did some further investigation. As well, the amount of income generated by the Property was not of particular concern to Mr. Shivers since the mortgage being sought was a first mortgage and for an amount just over 50% of the value of the Property. The mortgage amount was $215,000 and the assessed value of the Property was $412,000.

[18] Mr. Miller performed the due diligence on the Property. Mr. Miller’s evidence is that it is not unusual to get faxed letters with no signatures. One of the reference letters provided by Jaspal Virdi indicated that a school district leased the Property to park buses. Mr. Shivers was told by Mr. Miller that he had observed school buses parked on the Property. As well, Mr. Miller testified he telephoned Cardinal bus lines and confirmed that Cardinal leased the Property to park school buses on. The other letter was from a business who leased a building on the Property to operate an automobile repair facility. Mr. Shivers was told by Mr. Miller that he had observed the business on the Property.

[19] Jaspal Virdi produced a property assessment showing that he was the owner of the Property, and evidence that there was insurance in place. The 2003 property assessment shows Jaspal Virdi as the owner of the Property and is addressed to his home address which is also his parents’ residence.

[20] Mr. Shivers testified that the fact Jaspal Virdi was anxious to obtain the mortgage proceeds did not cause him concern. Apparently, there was a limited window of time when Jaspal Virdi could purchase the automobile at the price he had negotiated. As far as Mr. Shivers understood, Jaspal Virdi had a legitimate business reason to want the funds soon.

[21] Mr. Miller testified that he had a conversation with Jaspal Virdi’s sister, Savinder Virdi, in which she advised him that Jaspal Virdi should not be putting a mortgage on the Property. Mr. Miller spoke to Jaspal Virdi who advised him that his sister was estranged from the family as a result of her marriage, and that both she and her husband were upset because his parents had given the Property to him. Mr. Miller advised Mr. Shivers about his conversations with both Savinder Virdi and Jaspal Virdi.

[22] Bajan Virdi argues that it was apparent that Mr. Miller spoke to Mr. Shivers about the concerns Savinder Virdi raised, and that caused the suspicions of Mr. Shivers to be aroused. Bajan Virdi says that once his suspicions were aroused it was incumbent on Mr. Shivers to make investigations, and that simply reviewing the title to determine if Jaspal Virdi was the registered owner and relying on Jaspal Virdi’s word that it was a family dispute was not sufficient in the circumstances.

[23] However, Savinder Virdi’s evidence was not that she told Mr. Miller that Jaspal Virdi did not own the Property, but that Jaspal Virdi should not be putting a mortgage on the Property. She testified that she told Mr. Miller that she thought her mother and father had put a mortgage on the Property. In cross examination Savinder Virdi admitted that at the time she had the telephone call with Mr. Miller she did not know if there had been a legitimate transaction between Jaspal Virdi and her parents. Savinder Virdi is estranged from her father, and he is the one who takes care of all the business. Bajan Virdi did not have much knowledge about the Property as she relies on her husband for all business dealings. Bajan Virdi understood as a result of a conversation with her husband that he had purchased the Property and put it in her name, although she did not know about it until after he had put it in her name.

[24] The evidence of Bajan Virdi and Savinder Virdi was very odd. Savinder Virdi testified that her initial concern when she spoke to Mr. Miller was that Jaspal Virdi had done something to her own property and may have transferred her property into his name. As soon as she finished speaking to Mr. Miller she advised her husband about the telephone call. According to Savinder Virdi, her husband had a telephone conversation with Mr. Miller immediately after her conversation with him. After talking to Mr. Miller, Savinder Virdi’s husband telephoned her father. Both Savinder Virdi and her husband spoke to her father on the telephone right after speaking to Mr. Miller.

[25] Savinder Virdi testified that her father reassured her that it was extremely difficult for someone to transfer a property into their name. After speaking to her father Savinder Virdi understood that the she should not be concerned about her property because she had not heard from any appraiser and had not received any telephone calls regarding her property. Savinder Virdi did not have any further discussions with Mr. Miller about the Property after the initial telephone call. Savinder Virdi testified that she saw Jaspal Virdi driving a Ferrari shortly after her conversation with Mr. Miller but that did not concern her. Even though she saw him throughout the summer following the telephone call, Savinder Virdi did not discuss her conversation with Mr. Miller with Jaspal Virdi.

[26] Bajan Virdi testified that she knows little about the Property and does not know how the Property was transferred back into her name from Jaspal Virdi. Bajan Virdi testified that she cannot remember when she became aware of problems with the ownership of the Property. Her husband took care of all of the dealings with the Property, including having Jaspal Virdi transfer the Property back to her.

[27] In the summer of 2003, Jaspal Virdi was living at home part of the time. Bajan Virdi noticed that he was driving a Ferrari. Bajan Virdi testified that even though Jaspal Virdi lived at home, she did not talk to him very much. She does not think he had a job at the time, as both she and her husband would give him money from time to time. Bajan Virdi does not know where Jaspal Virdi lived in 2003 when he was not living at home, or what he did. Even though she knew he did not have a job, Bajan Virdi did not ask him how he was able to purchase the Ferrari. Bajan Virdi said the reason she did not ask Jaspal Virdi about the Ferrari was because he would not have told her the truth. Bajan Virdi does recall that at some point she heard someone was trying to put a mortgage on the Property and talked to her husband about it, but does not remember when or any details of her discussions with her husband.

[28] Neither Savinder Virdi’s husband nor her father testified at the trial. As a result there is no evidence about Savinder Virdi’s husband’s telephone call with Mr. Miller. There is also no evidence about whether Savinder Virdi’s husband or her father had discussions with Jaspal Virdi as a result of Mr. Miller’s telephone call.

[29] The evidence reveals that Savinder Virdi was far from clear with Mr. Miller that Jaspal Virdi did not own the Property. She did not suggest to Mr. Miller that there had been a fraudulent transfer. Her evidence is consistent with that of Mr. Miller, i.e. that she told him that Jaspal Virdi should not be putting a mortgage on the Property. However, she did not know whether or not Jaspal Virdi owned the Property at the time. Savinder Virdi testified that at time she did not know if her parents had transferred the Property to Jaspal Virdi, or if there had been some transaction between her parents and Jaspal Virdi that was legitimate. Savinder Virdi’s evidence is that understood that her parents had put a mortgage on the Property around the same time. However, she could not remember who she heard that from or any of the details.

[30] Savinder Virdi’s evidence is that she has been estranged from her father since the time of her marriage, over 16 years ago, and hardly speaks to him. She testified that he never discusses his business affairs with her, and is an extremely private man. Savinder Virdi’s testimony is inconsistent with that of Bajan Virdi. Whereas Bajan Virdi testified that she knows almost nothing about the Property and no details of the transfer as she left that up to her husband, Savinder Virdi says that her discussions about the Property were with Bajan Virdi.

[31] Mr. Miller testified that after his conversation with Savinder Virdi he contacted Jaspal Virdi who advised him that his sister was estranged from the family because she had married a Caucasian man, and was always causing him trouble. Jaspal Virdi was the person who had given Mr. Miller the letter with Savinder Virdi’s name and number on it, for a reference regarding his employment and shareholding in Pan Pacific Automobile and Diesel Services Limited. There is no evidence that Savinder Virdi raised any concern with Mr. Miller that Jaspal Virdi was involved in any fraud. Nor is there any evidence that Mr. Miller raised any concern with Mr. Shivers that Jaspal Virdi was involved in any fraud. The only concern was whether Jaspal Virdi was entitled to place a mortgage on the Property.

[32] When he was told of Mr. Miller’s conversations with Savinder Virdi and Jaspal Virdi, Mr. Shivers took steps to contact the notary public to determine who owned the Property according to the Land Title Office, and confirmed that Jaspal Virdi was the registered owner. While it may be said that CMIC’s suspicions were aroused regarding who owned the Property, there is no evidence that there was any suspicion raised that there had been a fraudulent transfer of the Property. There had been no suggestion by Savinder Virdi that Jaspal Virdi was involved in a fraudulent transfer of the Property, simply that he should not be placing a mortgage on the Property. The suspicion raised was whether Jaspal Virdi was the person who was entitled to place a mortgage on the Property, i.e. was he the registered owner.

[33] There were a number of factors which supported the view held by CMIC that this was a legitimate transaction, including:

1. Jaspal Virdi had a lawyer involved in the transaction;

2. the mortgage proceeds were paid to his lawyer’s firm and not to Jaspal Virdi directly;

3. Jaspal Virdi, through Mr. Miller, actively negotiated a reduction in the brokerage fee, which indicated to Mr. Shivers that he intended to pay the mortgage;

4. the mortgage was an average size mortgage, and there was excess equity in the Property;

5. the request for the mortgage came through a mortgage broker;

6. it was an open mortgage which was consistent with buying and reselling a an automobile; and

7. a normal rate of interest was charged.

[34] Mr. Shivers’s evidence was that in forty years of lending he had never come across a fraudulent transfer. There is no evidence that Mr. Shivers failed to make inquiries for fear of learning the truth. The concern was whether Jaspal Virdi was the registered owner. The evidence is that Mr. Shivers made inquiries of the notary public to determine if Jaspal Virdi was the registered owner of the Property in the Land Title Office. The notary public’s evidence is that she did a title search and Jaspal Virdi was the registered owner. Mr. Shivers testified that once he confirmed that Jaspal Virdi was the registered owner of the Property that concern was addressed.

[35] I am satisfied that CMIC made the appropriate inquiries in the circumstances, i.e. determining who was the registered owner of the Property. That, in my view, was all that was necessary in the circumstances of this case and no further inquiries were necessary once it was determined that Jaspal Virdi was the registered owner. CMIC was entitled to rely on the state of the title to the Property.

[36] As a result, I have concluded that Bajan Virdi has failed to satisfy the onus on her of establishing that CMIC should have made further inquiries about the title of the Property.

CONCLUSION

[37] CMIC is seeking the usual order nisi, with a one day redemption period. CMIC is not seeking personal judgment against Bajan Virdi for the amount of the mortgage; however, CMIC is seeking personal judgment against Jaspal Virdi.

[38] Bajan Virdi says that if an order nisi is granted she should be given a six month redemption period as is usual.

[39] CMIC says that Bajan Virdi has sought and received a number of adjournments of this matter, and that a lengthy period of redemption is inappropriate. I agree that a six month redemption period is inappropriate in the circumstances, but one day is inadequate for Bajan Virdi to take the necessary steps to redeem the mortgage.

[40] CMIC is entitled to the following declarations and orders:

1. a declaration that the mortgage is a mortgage and a charge on the Property ranking in priority to the interest of the defendants and their respective heirs, executors, administrators, and assigns, and all persons claiming through or under them;

2. a declaration that the mortgage is in default and all monies thereby are due and owing;

3. a declaration that the amount due and owing to CMIC under the mortgage is $289,183.25 as of June 15, 2006, plus interest in the amount of 11.75% per annum, calculated monthly, which as at June 16, 2006, amounts to $92.66 per day as provided in the mortgage;

4. an order nisi, with a one month redemption period;

5. an order that in default of the defendants redeeming the Property prior to the expiry of the redemption period, CMIC will be at liberty to apply for an order that the defendants and each of them will be foreclosed off all right, title and interest in the Property; and

6. an order that Jaspal Virdi pay CMIC the sum of $289,183.25 plus the costs of the trial on a solicitor and own client basis.

[41] As well, CMIC is at liberty to apply for an order that there be a further accounting, either before the court or by reference to the registrar, of any amounts due and owing to CMIC under the mortgage, if necessary.

“L. Gerow, J.”
The Honourable Madam Justice L. Gerow

Citation:	*CMIC Mortgage Inv. Corp. v. Virdi et al.,*
	2006 BCSC 1126