Friday, April 01, 2011 12:04:12 AM
fwd: MORTGAGE FRAUD PACKAGE
[got this from Jack Harper - kissin' cousin of Canada's Prime Minister Stephen Harper. this is mind-blowing!]
MORTGAGE FRAUD PACKAGE
Xxxxxx,
You have never read something like this.
I forgot I had this.
You are going to love this.
Jack
If human equality is to be for ever averted - if the High, as we have called them, are to keep their places permanently - then the prevailing mental condition must be controlled insanity
- George Orwell 1984
MORTGAGE FRAUD PACKAGE
Summary and Introduction
Metaphorically speaking, when it comes to the credit business, Canadians have been educated not to see the forest for the trees. A typical mortgage loan and its supporting documentation is so riddled with fraud and other illegalities that we fail to discern the merely unfair from the objectively criminal. Put another way: what is the official procedure for dealing with criminal acts committed as a matter of policy by financial institutions? The answer is that there is none. We then deal with that problem by denying its existence.
This analysis and report takes a layered approach to explaining the legal and equitable flaws in a typical mortgage loan agreement, its supporting documentation, and its administration, as follows:
Level 1 - General fraud (contractual substance misrepresentation)
Level 2 - Criminal interest rate (required deposit balance)
Level 3 - Currency Act fraud (unlawful consideration)
Level 4 - Forgery, uttering, etc. (making false document with intent)
Level 5 - Interest rate fraud (misrepresentation of cost of (alleged) borrowing)
Level 6 - Interest Act fraud (false disclosure, unlawful late-payment penalties)
Level 7 - Administration fraud (account falsification, breach of fiduciary duty)
By taking this approach the student can begin to see the larger fraud in terms of the relationships among its component parts. Each of the above categories is summarized below. A more detailed analysis forms the larger package.
Assuming then that things are as they appear and a very substantial number of mortgage documents in Canada are tainted by fraud, forgery, uttering forged documents, falsification of account records, etc., etc., then what are the theoretical consequences in equity? In theory the purported loans are wholly void, the purported borrowers are entitled to recover all moneys paid pursuant to such contracts, and the financial institutions and their lawyers are responsible for the resulting financial losses. The legal profession as a body is thus in prima facie conflict of interest with respect to this issue. Indeed it is the abject failure of the profession to police itself which has helped to create the problem itself.
Level 1. General fraud (contractual substance misrepresentation)
In most cases the financial institution does not in fact make a loan to the purported borrower. Rather it deceives the borrower into assuming they have received a loan through a misrepresentation of the substance of the transaction and of the source of the increase in purchasing power.
Normally the nominal borrower will be required to sign a promissory note for the amount of the purported loan and then give such promissory note to the financial institution. The mortgage will then be said to secure the promissory note. In cases where there is no promissory note the following will normally apply directly to the mortgage document.
The Canadian financial system operates on the premise that a promise to pay money is money, as per the discussion/summary provided by the Alberta Court of Appeal in Breckenridge Speedway Ltd., Green et al v. Reginam [1967] 61 W.W.R. 257, at p. 274 (underlining added):
The chartered banks in Canada issue obligations, namely, deposit liabilities, which are generally accepted as means of payment in Canada although they do not have the status of legal tender…. These deposit liabilities are a form of book debt owing by the bank to the customer and in most cases… are subject to transfer by cheque…. These deposit liabilities are used by the customers of the bank… which created them as a substitute for currency.
When a nominal borrower obtains a purported loan from a financial institution the institution will normally issue the borrower an unfunded obligation - a mere promise to pay money (legal tender - coins and notes) to the borrower – which promise to pay the borrower will then normally reassign, by cheque, to a third party (e.g., the person selling them the house). The institution will then owe the amount of the purported loan to the vendor of the property.
Normally the vendor will be content to hold the institution’s promise to pay as a deemed deposit account or else assign the liability to someone else by writing a cheque of their own. This in turn allows all financial institutions to issue credit – or promises to pay money – in vastly greater amounts than the institutions actually possess – individually or collectively.
When the purported borrower, however, signs a promissory note promising to pay the institution money the borrower has equally loaned money to the institution itself. The institution directly or indirectly records the promissory note as a deposit to the purported loan account which is then accessed by the purported borrower writing a cheque against the account transferring the institution’s liability – or promise to pay – to the vendor of the property. In terms of substance, the underlying promise to pay - the source of the increase in aggregate purchasing power - always remains with the maker of the initial promissory note and not the institution.
Another way to view the same phenomena is that the institution’s chequing account credit (in the amount of the purported loan) is effectively a promissory note issued by the institution to the nominal borrower. The borrower then pays for the house by giving the bank’s promissory note to the vendor of the property (who then takes it back to the bank). The key to the deception is to realize that there is no effective difference, in terms of financial instruments, between the promissory note created by the nominal borrower and the one issued by the financial institution. That is why the CIBC, for example, inserts the following disclaimer in certain of its (conditional) loan contracts:
6. Should the Bank from time to time take from the undersigned [the purported borrower] [promissory] notes representing any advances by way of [this account], such notes shall not extinguish or pay such advances but shall represent the same only.
The bank’s legal counsel recognize that the purported borrower’s promissory note represents a deposit of equal value into the loan account and that the bank provides no substantial consideration to the borrower. By the above para. 6 the borrower nominally agrees that their own promissory note money shall be deemed to be a gift to the financial institution while the bank’s promissory note money, which is 100% secured by the borrower’s promissory note (i.e., it is literally the borrower’s own money) shall be deemed to represent consideration by the bank to the borrower in the amount of the loan notwithstanding that it costs the bank nothing, or very nearly nothing.
It is thus a fraud to represent the transaction as a loan of substance rather than as an exchange of financial instruments having equal value. In R. v. Émond [1997] 117 C.C.C. (3d) 275, for example, the Quebec Court of Appeal ruled that it is malum in se (evil of itself - a fraudulent act) for a financial middleman to misrepresent the cost to themselves of a purported asset they have acquired for the use of a party. With respect to most institutional loans, the deposit liability issued by the institution is unfunded (or very nearly so) in terms of legal tender (currency). The account is funded, however, by the purported borrower's promissory note serving as a substitute for currency in the amount of the loan.
Effectively the purported borrower is hypothecating/capitalizing/converting their future earnings (equal to the loan amount plus interest) into a present-value financial instrument today (the loan amount). That financial instrument represents a net increase in total purchasing power in the economy. For all intents and purposes the borrower has effectively printed new money in the amount of the loan, they have guaranteed the value of such money by hypothecating their future earnings to it, and they have secured such money by pledging the asset to be acquired (or already owned) with it. By deceiving the nominal borrower (and society generally) into believing that the bank has loaned the existing money of a depositor, the bank(s) systemically and systematically acquire ownership of the nation and its productive output and capacity while producing virtually nothing at all. That is how the chartered banks have collectively increased their assets by some $800 billion since 1980 while the Bank of Canada has only printed about a net $20 billion of new currency.
By analogy, assume that a car rental business were to demand a virtually identical vehicle to the one purportedly being rented, and said to be held as security, from every customer. Without the customer's knowledge or informed consent, however, the purported rental business makes minor cosmetic changes to the vehicle and then supplies it to its customer, ostensibly as its own rental vehicle. If the purported rental business were very good at the deception it would soon be renting millions of vehicles to customers all over the country without ever having purchased a single vehicle of its own. The whole country would effectively be in the business of building new cars, giving them to the company as "security" and then unwittingly renting them back from the company at rates determined as if the rental company had in fact produced or acquired the vehicles by productive means.
The fraudulent result lies in part in what the legal system describes as the "unjust enrichment" of the person perpetuating the deception - in this case the car rental business. The financial value of the deception is represented by the total value of the vehicles being purportedly rented.
Returning to the purported loan, the only substantial property interest involved in the transaction is the property interest represented by the purported borrower's capacity to honour the promissory note they have made (and as secured by the mortgage). That property interest is then transferred to the institution for no consideration. Once so obtained the financial institution then purports to rent or loan the property interest back to the purported borrower in exchange for interest. The core wrongful act is the institution's concealment of the for-no-substantial-consideration-property-interest-transfer component of the whole transaction. The purported borrower is only told that the various financial instruments they sign are for security purposes - they are not told that their own instrument is in fact the financial vehicle which the institution intends to loan back to them at interest.
Once these facts are known, the institution's operating procedures become prima facie fraudulent. See also R. v. Olan (1978), 41 C.C.C. (2d) 145, 86 D.L.R. (3d) 212, [1978] 2 S.C.R. 1175, 5 C.R. (3d) 1, 21 N.R. 504; and R. v. Theroux (1993), 79 C.C.C. (3d) 449, 100 D.L.R. (4th) 624, [1993] 2 S.C.R. 5, 19 C.R. (4th) 194, 54 Q.A.C. 184, 151 N.R. 104, 19 W.C.B. (2d) 212.
Level 4., below, explains how, even if the reader does not grasp the prima facie fraudulent nature of the result, it is achieved by means which are equally fraudulent/criminal (and somewhat easier to appreciate). As the House of Lords noted in Scott v. Metropolitan Police Commissioner [1974] 60 Cr. App. R. 124 H.L., at p. 129:
One must not confuse the object of a conspiracy [to defraud] with the means by which it is intended to be carried out.
Level 2. The promissory note as a required deposit balance
Notwithstanding the fraud inherent to misrepresenting the substance of the transaction, there is also a somewhat unique problem with the mechanics of the deception vis a vis s. 347 of the Criminal Code.
As discussed above, by process and policy financial institutions require a potential purported borrower to first deposit the loan balance into the loan account by means of their own promissory note. Such device, per se, has also long been recognized as a means by which institutions understate the true cost of the purported borrowing - and this is where the problem arises with respect to s. 347.
Assume, for example, that an actual-currency lender wishes to charge a criminal rate of interest for a loan of, say, $1,000, but also to conceal that reality. A common mechanism for so doing is called a required deposit account. In this case the lender might claim to have loaned $2,000 while requiring the borrower to post $1,000 as a required deposit which itself pays no interest. Thus the lender advances a net $1,000 while collecting interest on $2,000. Whether the lender purports to loan $2,000 with the borrower giving back $1,000 - or the borrower first depositing $1,000 to receive back $2,000 is irrelevant to the deceptive result.
By manipulating the amount of the required offsetting deposit, virtually any real rate of interest can be disguised as a legal rate of interest (max. is 60% p.a.). For this reason the criminal law requires the effective annual rate of an agreement or arrangement to be determined net of any required deposit balance. Section 347(2) states, in material part, that (underlining added):
"credit advanced" means... the money... actually advanced or to be advanced under an agreement or arrangement minus the aggregate of any required deposit balance and any fee, fine, penalty, commission and other similar charge or expense directly or indirectly incurred under the original or any collateral agreement or arrangement;
where
"required deposit balance" means a fixed or an ascertainable amount of the money actually advanced or to be advanced under an agreement or arrangement that is required, as a condition of the agreement or arrangement, to be deposited or invested by or on behalf of the person to whom the advance is or is to be made and that may be available, in the event of his defaulting in any payment, to or for the benefit of the person who advances or is to advance the money.
With respect to the latter definition:
(1) Does the promissory note represent a fixed or ascertainable amount of the money actually advanced or to be advanced under the arrangement?
In the majority of cases the promissory note represents 100% of the money to be advanced under the arrangement;
(2) Is it required, as a condition of the agreement or arrangement, that the promissory note be deposited by or on behalf of the purported borrower?
The purported borrower is required to deposit the promissory note with the lender as a condition of the loan;
(3) If the purported borrower commits an act of default under the arrangement, is the promissory note available for the benefit of the purported lender?
If the borrower defaults then the promissory note becomes available for the benefit of the purported lender. This is made plain every time a purported lender sues a purported borrower. The purported lender produces the purported security instrument for enforcement, while concealing from the courts as well that the borrower's instrument also represented the consideration purportedly provided by the purported lender.
By s. 347 of the Criminal Code, however, any such arrangement will always be a criminal arrangement because it will always define an infinite and therefore criminal rate of interest when measured, as is apparently required, against the lender's own net contribution which is zero.
Level 3. Currency Act fraud (unlawful consideration)
Assuming that the institution does not in fact execute its purported consideration to the borrower via the payment of coins and notes then the transaction appears to be unlawful by s. 13 of the Currency Act.
The federal Currency Act sub-classifies currency of Canada into two types - legal tender coins and legal tender notes. Section 7 defines certain coins as current and s. 8 then states:
8. (1) Subject to this section, a tender of payment of money is a legal tender if it is made
(a) in coins that are current under section 7; and
(b) in notes issued by the Bank of Canada pursuant to the Bank of Canada Act intended for circulation in Canada.
The section then goes on to define limits for the number of coins which can be tendered in respect of a given transaction amount, but in general expressly provides for only two forms of legal tender/currency of Canada - (1) certain coins and (2) notes issued by the Bank of Canada.
The dominant legal principle appears to be expressio unius est exclusio alterius - that that which is expressed excludes that which is not. Unfunded liabilities of private corporations are not included as legal tender of Canada and are therefore implicitly excluded.
Section 13 of the Act then requires that the monetary aspect of every contract be carried out in the currency of Canada, subject to two exceptions (underlining added):
Contracts, etc.
13. (1) Every contract, sale, payment, bill, note, instrument and security for money and every transaction, dealing, matter and thing relating to money or involving the payment of or the liability to pay money shall be made, executed, entered into, done or carried out in the currency of Canada, unless it is made, executed, entered into, done or carried out in
(a) the currency of a country other than Canada; or
(b) a unit of account that is defined in terms of the currencies of two or more countries.
Assuming the obvious non-application of the two named exceptions, if a purported loan contract is not entered into through the provision of currency (coins and notes) of Canada by the purported lender, then prima facie, it is not a lawful contract.
The section makes two essential stipulations: (1) that every contract relating to money shall be executed in currency, and (2) that such currency shall be the currency of Canada.
Level 4. Forgery, uttering, etc. (making false document with intent)
Most mortgage documents claim, as at the date they are executed, that the purported borrower is the existing owner, and registered owner, of the property being mortgaged. In most cases the same documents will then also claim to be a receipt for the purported loan proceeds. Often, assuming that the purported loan was originally sought to obtain the named property, both of these declarations will be unequivocally false.
A typical 1995 farm mortgage, for example, purportedly evidences a loan of $87,000.00 by the Lloydminster Credit Union to Shaun Herle, Leslee Herle, Alexander Aloisius Herle and Andrea Herle on or before March 28, 1995. The document states, in material part (emphasis added):
WE, SHAUN HERLE, LESLEE HERLE, ALEXANDER ALOISIUS HERLE AND ANDREA HERLE... being registered as owner of an estate in fee simple in those lands in the Province of Saskatchewan described as follows:
FIRSTLY:
The North West quarter of Section Three (3) ... [etc.] ...
in consideration of the sum of EIGHTY-SEVEN THOUSAND... xx/100 Dollars ($87,000.00) lent [past tense] to the Mortgagor by LLOYDMINSTER CREDIT UNION LIMITED, Neilburg Branch, whose postal address is P.O. Box 56 in Neilburg in the Province of Saskatchewan, who and whose successors and assigns are hereinafter included in the expression "the Mortgagee," the receipt of which sum is hereby acknowledged, covenants and agrees with the Mortgagee as follows: (see Schedule "A" attached)
Registered with and forming part of the mortgage are three Affidavits - one by each of Leslee Herle, Alex Herle and Andrea Herle - which state (to use that of Alex Herle as an example (underlining added)):
FORM D
(Subsection 8(1) of the Homestead Act)
AFFIDAVIT
I, ALEXANDER ALOISIUS HERLE, of Neilburg, the Province of Saskatchewan, MAKE OATH AND SAY THAT:
1. I am a mortgagor.
2. My spouse is a registered owner of the land that is the subject matter of this disposition and a co-signature to this disposition.
SWORN before me at Unity, )
In the Province of ) ____[signature]__________________
Saskatchewan, on the 28th) ALEXANDER ALOISIUS HERLE
day of March, 1995.)
____[(apparent) signature of credit union’s solicitor]____
A Notary Public in and for the
Province of Saskatchewan
Being a Solicitor
Likewise, para. 7 of the mortgage contains the following material provisions (underlining added):
COVENANTS AS TO TITLE
(a) The Mortgagor has a good title to the said land;
(b) The Mortgagor has the right to mortgage the land;
(e) The Mortgagor has done no act to encumber the land.
The entire mortgage document, including the attached Affidavits, is signed, witnessed, and notarized on March 28, 1995. The relevant charges (under the Criminal Code) described in detail in the main body of the report (and briefly below) are based on the following facts (and notwithstanding the fraud discussed in Level 1):
1. The declaration of prior/concurrent performance/consideration by the credit union is false. No money or credit in respect of the loan was or had been advanced as of the March 28, 1995 sworn declaration to the contrary. According to subsequent account records, $87,000.00 of "loan proceeds" was disbursed by the credit union on May 9, 1995 (approximately six weeks later).
2. The declaration(s) of ownership of the property by the purported mortgagors was false as and when it was made on March 28, 1995.
3. The declaration(s) of registered ownership of the property by the purported mortgagors was false as and when it was made on March 28, 1995.
4. Registration of the mortgage claim by the credit union was affected on April 19, 1995 - approximately three weeks after the mortgage and affidavits to the contrary were signed, witnessed, and/or notarized - and approximately three weeks before any credit would be advanced on May 9, 1995.
Under Canadian law the provision of a false material particular within a security document will cause the document to be a false document (under s. 321(b) of the Criminal Code) even though the document is otherwise made by the person who purports to make it:
321. In this Part,
"document" means any paper, parchment or other material on which is recorded or marked anything that is capable of being read or understood by a person, computer system or other device, and includes a credit card, but does not include trade marks on articles of commerce or inscriptions on stone or other like material;
...
"false document" means a document
(b) that is made by or on behalf of the person who purports to make it but is false in some material particular;
Section 366(1)(b) then states:
Criminal Code s. 366
366. Every one commits forgery who makes a false document, knowing it to be false, with intent (b) that a person should be induced, by the belief that it is genuine, to do or to refrain from doing anything, whether within Canada or not.
The purported borrower and the financial institution are co-makers of the promissory note and/or mortgage document. The purported borrower is the maker in the sense that they sign it/them while the institution is the maker in the sense that it creates and has material control over the substance of the representations made therein. Either way, based on the assumptions mentioned above, the documents will be forgeries in law. If the institution has knowledge of the material falseness of the representations made in the documents when it registers the mortgage document then such act constitutes the offence of uttering forged (false) documents under s. 368 of the Criminal Code. (Also by s. 386 w.r.t. deceiving the registrar). And of course the institution commits a separate act of utter a forged document when it deposits the false document promissory note as a credit to the loan account.
Again in terms of the car rental analogy, it is obviously necessary for the company to take delivery of the customer's own vehicle before it can make the minor alterations so as to then loan the purported customer their own vehicle back. The principle is identical with a purported mortgage loan. That is why the documents will often state of the purported loan proceeds - "the receipt of which sum is hereby acknowledged" - even though no such funds will be, or will have been, received by the purported borrower as and when they sign the documents which claim the contrary.
The declarations are absolute and do not admit of subjective opinion. The words "the receipt of which sum is hereby acknowledged", for example, does not speak to a future contemplated act, but rather expressly to an act which has already occurred.
The same goes to a limited extent for the promissory note(s). If the promissory note is of the form "For value received, I promise to pay..." where no consideration has been in fact received as and when the instrument is signed and given over, then such an instrument is void for lack of consideration (i.e., even if the institution were loaning its own or someone else’s money).
The English language employs three primary tenses with respect to time. They are past, present, and future. A transaction which parties intend shall transpire at some future time can only be described using the future tense; it cannot be described using the past tense as that tense can only be used to described events that have already occurred.
If, as and when the promissory note is given to the institution, the "value received" is zero then the instrument is void from that point. It may be that an innocent or unintentional such mistake in the execution of a promissory note can be cured or ratified by the subsequent delivery of the consideration contemplated, but no such remedy can exist where the false statement (or null consideration) is a material element in a fraudulent misrepresentation.
Consider again the disclaimer clause discussed under 1., above, from a CIBC (conditional (i.e., overdraft or operating line of credit) loan contract:
6. Should the Bank from time to time take from the undersigned notes representing any advances by way of [this account], such notes shall not extinguish or pay such advances but shall represent the same only.
The fraudulent substance of the whole transaction is reflected in the circular argument defined by the disclaimer:
6. ...notes representing...advances...shall represent the same...
Here the bank is creating an Overdraft Account under which it agrees to make purported loans up to a certain specified amount, in this case $55,000. Because the written agreement makes it clear that no funds have as yet been advanced the paper has no value as a financial instrument, per se. If and when the purported borrower does actually draw upon the account the bank may (depending on circumstances) actually have to advance what is in effect its own money to the borrower. In such case the bank will then effectively demand, as per its para. 6, that the borrower reimburse the bank by giving a promissory note after the fact for the amount of the actual advance.
Again, this is somewhat of a special case (like a credit card account cash advance) that is procedurally more expensive to the bank because it must initially use its own funds instead of those of the purported borrower. In the vast majority of cases where a definite amount and timing is agreed upon in advance the security documents will generally falsely claim to represent a completed transaction so that the financial institution can fund the loan account with the purported borrower’s own financial instrument instead of tying up its own money.
At the end of any significant period the institutions will collectively own virtually everything while having produced nothing of substance. The mistake made in the past has been for those capable of seeing the fraud to argue for change on that basis. It is, however, far more efficient and effective to concentrate on the objectively criminal means by which the fraud is perpetrated rather than the fraud per se.
Level 5. Interest Act fraud (misrepresentation of cost of (alleged) borrowing)
Financial institutions employ all manner of dishonest device by which to conceal or disguise the cost of borrowing expressed as a rate per annum (i.e., even if they were actually lending their own or someone else's money). The most significant of these has been what are termed loan fees. Parliament has attempted on at least twelve occasions since 1880 to prohibit lenders from capitalizing their own business expenses to a borrower’s debt. In virtually every case, however, the courts ruled on ultimate appeal that these laws have some other purpose and basically refused to give them effect.
Of similar importance, especially in the more recent era, is the purported technique of "calculating" the agreed rate of interest as well as the interest payments per se. This fraudulent technique is recognized as unique to Canadian financial institutions and has been prohibited (in any form) in the U.K. since 1974 on the grounds that it has no mathematical validity and is "seriously misleading". Indeed, it is prima facie a fraud.
Other techniques discussed in the main body of the report, some more directly criminal than others, include multiple nominal accounts with prescribed minimum transfer amounts, word games with "shall" versus "may", willful subversion of legal principles, etc., etc.
Level 6. Interest Act fraud (rate misrepresentation, unlawful penalties)
Often a mortgage loan agreement will call for a penalty of usually $15 to $30 for the event of any payment not being made when due. The following, for example, is from a Canada Trustco mortgage loan contract:
Should any payment on this mortgage loan not be honoured, Canada Trustco may charge a fee for each such payment. At present the fee is $19.00 per item.
Section 8 of the Canada Interest Act expressly prohibits the charging of any penalty on arrears of principal or interest secured by mortgage of real estate:
8. (1) No fine or penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage of real estate, that has the effect of increasing the charge on any such arrears beyond the rate of interest payable on principal money not in arrears.
The act of stipulating for such a penalty theoretically strips the institution of its access to the civil courts (i.e., it forfeits its locus standi in curia) such that it cannot maintain an action (as per the explanation of Gwynne, J. of the S.C.C. in Bank of Toronto v. Perkins, [1883] S.C.R. [Vol. VIII] 603). The same principle applies to each of the seven categories mentioned at the outset. It is an axiom of free-market philosophy that the state not interfere in commercial transactions except by denying access to the civil courts through what is often termed the clean hands principle. The principle is intended to keep the system honest (emphasis in original):
CLEAN HANDS are required from a plaintiff, i.e., he must be free from reproach, or taint of fraud, etc., in his conduct in respect of the subject matter of his claim ; everything else is immaterial.
Also, such documents are on their face a fraud in that the provision itself is a representation of its validity. That is, the institution is a sophisticated financial and legal entity; the fact that it includes such a penalty provision is a de facto attestation to its legality. That misrepresentation is a fraud of itself.
Further, several of these $19 penalties were subsequently assessed in this particular case, and this involves a further wrongful act by the trust company. By signing the direct debit form, the purported borrower both directed and authorized the trust company to issue what is in effect a cheque written against the purported borrower’s account in the amount specified under the authorization/directive (see Esso Petroleum Co Ltd v. Milton [1997] 2 All E.R. 593).
The financial institution acts as the agent of the account holder in fact and in law. This is why, for example, a cheque writer can order the financial institution to stop payment on a cheque already written but before it has been presented against the account for payment.
It is, however, a crime to write a cheque against an account knowing that the cheque cannot be honoured (at the time it is written) due to insufficient funds. Section 362(4) of the Criminal Code even expressly states that, in a proceeding under s. 362(1)(a) (obtaining by false pretence), an accused is presumed to know whether a cheque they have written will be dishonoured as NSF. That section (362(4)) has since been ruled null and void (R. v. Driscoll (1987), 38 C.C.C. (3d) 28) as contrary to the presumption of innocence under the Charter of Rights and Freedoms - meaning merely that the cheque writer's knowledge of the account balance must still be established for a conviction under s. 362(1)(a). The more common term for the offence is "cheque-kiting" or "cheque- flashing" and is defined as the issuance of a liability against an account before an equivalent value has been deposited into the account (i.e., with the knowledge that there are no funds in the account at the time the cheque is written).
In the present case, the account holder’s agent, Canada Trustco, was instructed by the account holder to write a cheque, payable to itself, against the account, on a stipulated date each month. If, however, there are insufficient funds in the account, the institution must not issue the cheque because it would otherwise be committing a crime as the agent of the account holder and in their name. The institution obviously knows (or should know) that there is insufficient funds in the account but issues the cheque anyway solely to enrich itself by the $19 penalty - a penalty which it knows (or is deemed to know) is unlawful by s. 8(1) of the Interest Act.
In any event, in order to argue that it has not committed a wrongful act as the account holder’s agent by attempting to debit the amount with knowledge of the NSF status of the account, the trust company must argue that the $19 penalty is just that - a pure illegal penalty for the mortgage payment being in arrears - and not an NSF penalty per se. Either way the act itself is prima facie illegal.
Level 7 - Administration fraud (account falsification, breach of fiduciary duty)
Financial institutions systematically defraud their account holders through a large and seemingly increasing number of account manipulation techniques. These techniques range from simple deceptive word games to the direct falsification of the accounting records. The primary benefit to the reader is that even a tertiary review of these practices lays it bare that there is virtually no illegal act beyond the contemplation of a modern financial institution.
Conclusion
The "all or nothing" game has worked so well and so often in the past that the directors and legal counsel running the institutions are convinced that there is no indignity which the Canadian public will not suffer to prevent "the system" from collapsing. The reality is that these institutions produce nothing, they possess only a few billion dollars of real money and are nothing more than a sophisticated cheque-kiting operation with respect to the remaining trillion dollars of their so-called assets. They could disappear from the face of the Earth tomorrow and the vast majority of people would be radically better off.
If you have attended one of our seminars and/or are reading this first version (1.0) of the Mortgage Package then you are on the vanguard of a movement that became inevitable 300 years ago with the establishment of the privately-owned Bank of England. The core strategy of the money power elite has been to bury the truth in mountains of data that no single individual could hope to wade through in a single lifetime. But technology, and therefore time, is the natural enemy of such a strategy, and the clock is winding down.
We are truly a global village that can no longer put off dealing with the fact that those whom we have collectively trusted to manage our collective financial affairs have been stealing from us. The looters will very likely stage or provoke some act of violence so to justify changing the rules so as to escape justice. We must steadfastly resist being drawn into such a trap. The issue has gone well beyond political or economic philosophy - it is about a mass movement of resolute citizens firmly insisting on the application of the criminal law.
[got this from Jack Harper - kissin' cousin of Canada's Prime Minister Stephen Harper. this is mind-blowing!]
MORTGAGE FRAUD PACKAGE
Xxxxxx,
You have never read something like this.
I forgot I had this.
You are going to love this.
Jack
If human equality is to be for ever averted - if the High, as we have called them, are to keep their places permanently - then the prevailing mental condition must be controlled insanity
- George Orwell 1984
MORTGAGE FRAUD PACKAGE
Summary and Introduction
Metaphorically speaking, when it comes to the credit business, Canadians have been educated not to see the forest for the trees. A typical mortgage loan and its supporting documentation is so riddled with fraud and other illegalities that we fail to discern the merely unfair from the objectively criminal. Put another way: what is the official procedure for dealing with criminal acts committed as a matter of policy by financial institutions? The answer is that there is none. We then deal with that problem by denying its existence.
This analysis and report takes a layered approach to explaining the legal and equitable flaws in a typical mortgage loan agreement, its supporting documentation, and its administration, as follows:
Level 1 - General fraud (contractual substance misrepresentation)
Level 2 - Criminal interest rate (required deposit balance)
Level 3 - Currency Act fraud (unlawful consideration)
Level 4 - Forgery, uttering, etc. (making false document with intent)
Level 5 - Interest rate fraud (misrepresentation of cost of (alleged) borrowing)
Level 6 - Interest Act fraud (false disclosure, unlawful late-payment penalties)
Level 7 - Administration fraud (account falsification, breach of fiduciary duty)
By taking this approach the student can begin to see the larger fraud in terms of the relationships among its component parts. Each of the above categories is summarized below. A more detailed analysis forms the larger package.
Assuming then that things are as they appear and a very substantial number of mortgage documents in Canada are tainted by fraud, forgery, uttering forged documents, falsification of account records, etc., etc., then what are the theoretical consequences in equity? In theory the purported loans are wholly void, the purported borrowers are entitled to recover all moneys paid pursuant to such contracts, and the financial institutions and their lawyers are responsible for the resulting financial losses. The legal profession as a body is thus in prima facie conflict of interest with respect to this issue. Indeed it is the abject failure of the profession to police itself which has helped to create the problem itself.
Level 1. General fraud (contractual substance misrepresentation)
In most cases the financial institution does not in fact make a loan to the purported borrower. Rather it deceives the borrower into assuming they have received a loan through a misrepresentation of the substance of the transaction and of the source of the increase in purchasing power.
Normally the nominal borrower will be required to sign a promissory note for the amount of the purported loan and then give such promissory note to the financial institution. The mortgage will then be said to secure the promissory note. In cases where there is no promissory note the following will normally apply directly to the mortgage document.
The Canadian financial system operates on the premise that a promise to pay money is money, as per the discussion/summary provided by the Alberta Court of Appeal in Breckenridge Speedway Ltd., Green et al v. Reginam [1967] 61 W.W.R. 257, at p. 274 (underlining added):
The chartered banks in Canada issue obligations, namely, deposit liabilities, which are generally accepted as means of payment in Canada although they do not have the status of legal tender…. These deposit liabilities are a form of book debt owing by the bank to the customer and in most cases… are subject to transfer by cheque…. These deposit liabilities are used by the customers of the bank… which created them as a substitute for currency.
When a nominal borrower obtains a purported loan from a financial institution the institution will normally issue the borrower an unfunded obligation - a mere promise to pay money (legal tender - coins and notes) to the borrower – which promise to pay the borrower will then normally reassign, by cheque, to a third party (e.g., the person selling them the house). The institution will then owe the amount of the purported loan to the vendor of the property.
Normally the vendor will be content to hold the institution’s promise to pay as a deemed deposit account or else assign the liability to someone else by writing a cheque of their own. This in turn allows all financial institutions to issue credit – or promises to pay money – in vastly greater amounts than the institutions actually possess – individually or collectively.
When the purported borrower, however, signs a promissory note promising to pay the institution money the borrower has equally loaned money to the institution itself. The institution directly or indirectly records the promissory note as a deposit to the purported loan account which is then accessed by the purported borrower writing a cheque against the account transferring the institution’s liability – or promise to pay – to the vendor of the property. In terms of substance, the underlying promise to pay - the source of the increase in aggregate purchasing power - always remains with the maker of the initial promissory note and not the institution.
Another way to view the same phenomena is that the institution’s chequing account credit (in the amount of the purported loan) is effectively a promissory note issued by the institution to the nominal borrower. The borrower then pays for the house by giving the bank’s promissory note to the vendor of the property (who then takes it back to the bank). The key to the deception is to realize that there is no effective difference, in terms of financial instruments, between the promissory note created by the nominal borrower and the one issued by the financial institution. That is why the CIBC, for example, inserts the following disclaimer in certain of its (conditional) loan contracts:
6. Should the Bank from time to time take from the undersigned [the purported borrower] [promissory] notes representing any advances by way of [this account], such notes shall not extinguish or pay such advances but shall represent the same only.
The bank’s legal counsel recognize that the purported borrower’s promissory note represents a deposit of equal value into the loan account and that the bank provides no substantial consideration to the borrower. By the above para. 6 the borrower nominally agrees that their own promissory note money shall be deemed to be a gift to the financial institution while the bank’s promissory note money, which is 100% secured by the borrower’s promissory note (i.e., it is literally the borrower’s own money) shall be deemed to represent consideration by the bank to the borrower in the amount of the loan notwithstanding that it costs the bank nothing, or very nearly nothing.
It is thus a fraud to represent the transaction as a loan of substance rather than as an exchange of financial instruments having equal value. In R. v. Émond [1997] 117 C.C.C. (3d) 275, for example, the Quebec Court of Appeal ruled that it is malum in se (evil of itself - a fraudulent act) for a financial middleman to misrepresent the cost to themselves of a purported asset they have acquired for the use of a party. With respect to most institutional loans, the deposit liability issued by the institution is unfunded (or very nearly so) in terms of legal tender (currency). The account is funded, however, by the purported borrower's promissory note serving as a substitute for currency in the amount of the loan.
Effectively the purported borrower is hypothecating/capitalizing/converting their future earnings (equal to the loan amount plus interest) into a present-value financial instrument today (the loan amount). That financial instrument represents a net increase in total purchasing power in the economy. For all intents and purposes the borrower has effectively printed new money in the amount of the loan, they have guaranteed the value of such money by hypothecating their future earnings to it, and they have secured such money by pledging the asset to be acquired (or already owned) with it. By deceiving the nominal borrower (and society generally) into believing that the bank has loaned the existing money of a depositor, the bank(s) systemically and systematically acquire ownership of the nation and its productive output and capacity while producing virtually nothing at all. That is how the chartered banks have collectively increased their assets by some $800 billion since 1980 while the Bank of Canada has only printed about a net $20 billion of new currency.
By analogy, assume that a car rental business were to demand a virtually identical vehicle to the one purportedly being rented, and said to be held as security, from every customer. Without the customer's knowledge or informed consent, however, the purported rental business makes minor cosmetic changes to the vehicle and then supplies it to its customer, ostensibly as its own rental vehicle. If the purported rental business were very good at the deception it would soon be renting millions of vehicles to customers all over the country without ever having purchased a single vehicle of its own. The whole country would effectively be in the business of building new cars, giving them to the company as "security" and then unwittingly renting them back from the company at rates determined as if the rental company had in fact produced or acquired the vehicles by productive means.
The fraudulent result lies in part in what the legal system describes as the "unjust enrichment" of the person perpetuating the deception - in this case the car rental business. The financial value of the deception is represented by the total value of the vehicles being purportedly rented.
Returning to the purported loan, the only substantial property interest involved in the transaction is the property interest represented by the purported borrower's capacity to honour the promissory note they have made (and as secured by the mortgage). That property interest is then transferred to the institution for no consideration. Once so obtained the financial institution then purports to rent or loan the property interest back to the purported borrower in exchange for interest. The core wrongful act is the institution's concealment of the for-no-substantial-consideration-property-interest-transfer component of the whole transaction. The purported borrower is only told that the various financial instruments they sign are for security purposes - they are not told that their own instrument is in fact the financial vehicle which the institution intends to loan back to them at interest.
Once these facts are known, the institution's operating procedures become prima facie fraudulent. See also R. v. Olan (1978), 41 C.C.C. (2d) 145, 86 D.L.R. (3d) 212, [1978] 2 S.C.R. 1175, 5 C.R. (3d) 1, 21 N.R. 504; and R. v. Theroux (1993), 79 C.C.C. (3d) 449, 100 D.L.R. (4th) 624, [1993] 2 S.C.R. 5, 19 C.R. (4th) 194, 54 Q.A.C. 184, 151 N.R. 104, 19 W.C.B. (2d) 212.
Level 4., below, explains how, even if the reader does not grasp the prima facie fraudulent nature of the result, it is achieved by means which are equally fraudulent/criminal (and somewhat easier to appreciate). As the House of Lords noted in Scott v. Metropolitan Police Commissioner [1974] 60 Cr. App. R. 124 H.L., at p. 129:
One must not confuse the object of a conspiracy [to defraud] with the means by which it is intended to be carried out.
Level 2. The promissory note as a required deposit balance
Notwithstanding the fraud inherent to misrepresenting the substance of the transaction, there is also a somewhat unique problem with the mechanics of the deception vis a vis s. 347 of the Criminal Code.
As discussed above, by process and policy financial institutions require a potential purported borrower to first deposit the loan balance into the loan account by means of their own promissory note. Such device, per se, has also long been recognized as a means by which institutions understate the true cost of the purported borrowing - and this is where the problem arises with respect to s. 347.
Assume, for example, that an actual-currency lender wishes to charge a criminal rate of interest for a loan of, say, $1,000, but also to conceal that reality. A common mechanism for so doing is called a required deposit account. In this case the lender might claim to have loaned $2,000 while requiring the borrower to post $1,000 as a required deposit which itself pays no interest. Thus the lender advances a net $1,000 while collecting interest on $2,000. Whether the lender purports to loan $2,000 with the borrower giving back $1,000 - or the borrower first depositing $1,000 to receive back $2,000 is irrelevant to the deceptive result.
By manipulating the amount of the required offsetting deposit, virtually any real rate of interest can be disguised as a legal rate of interest (max. is 60% p.a.). For this reason the criminal law requires the effective annual rate of an agreement or arrangement to be determined net of any required deposit balance. Section 347(2) states, in material part, that (underlining added):
"credit advanced" means... the money... actually advanced or to be advanced under an agreement or arrangement minus the aggregate of any required deposit balance and any fee, fine, penalty, commission and other similar charge or expense directly or indirectly incurred under the original or any collateral agreement or arrangement;
where
"required deposit balance" means a fixed or an ascertainable amount of the money actually advanced or to be advanced under an agreement or arrangement that is required, as a condition of the agreement or arrangement, to be deposited or invested by or on behalf of the person to whom the advance is or is to be made and that may be available, in the event of his defaulting in any payment, to or for the benefit of the person who advances or is to advance the money.
With respect to the latter definition:
(1) Does the promissory note represent a fixed or ascertainable amount of the money actually advanced or to be advanced under the arrangement?
In the majority of cases the promissory note represents 100% of the money to be advanced under the arrangement;
(2) Is it required, as a condition of the agreement or arrangement, that the promissory note be deposited by or on behalf of the purported borrower?
The purported borrower is required to deposit the promissory note with the lender as a condition of the loan;
(3) If the purported borrower commits an act of default under the arrangement, is the promissory note available for the benefit of the purported lender?
If the borrower defaults then the promissory note becomes available for the benefit of the purported lender. This is made plain every time a purported lender sues a purported borrower. The purported lender produces the purported security instrument for enforcement, while concealing from the courts as well that the borrower's instrument also represented the consideration purportedly provided by the purported lender.
By s. 347 of the Criminal Code, however, any such arrangement will always be a criminal arrangement because it will always define an infinite and therefore criminal rate of interest when measured, as is apparently required, against the lender's own net contribution which is zero.
Level 3. Currency Act fraud (unlawful consideration)
Assuming that the institution does not in fact execute its purported consideration to the borrower via the payment of coins and notes then the transaction appears to be unlawful by s. 13 of the Currency Act.
The federal Currency Act sub-classifies currency of Canada into two types - legal tender coins and legal tender notes. Section 7 defines certain coins as current and s. 8 then states:
8. (1) Subject to this section, a tender of payment of money is a legal tender if it is made
(a) in coins that are current under section 7; and
(b) in notes issued by the Bank of Canada pursuant to the Bank of Canada Act intended for circulation in Canada.
The section then goes on to define limits for the number of coins which can be tendered in respect of a given transaction amount, but in general expressly provides for only two forms of legal tender/currency of Canada - (1) certain coins and (2) notes issued by the Bank of Canada.
The dominant legal principle appears to be expressio unius est exclusio alterius - that that which is expressed excludes that which is not. Unfunded liabilities of private corporations are not included as legal tender of Canada and are therefore implicitly excluded.
Section 13 of the Act then requires that the monetary aspect of every contract be carried out in the currency of Canada, subject to two exceptions (underlining added):
Contracts, etc.
13. (1) Every contract, sale, payment, bill, note, instrument and security for money and every transaction, dealing, matter and thing relating to money or involving the payment of or the liability to pay money shall be made, executed, entered into, done or carried out in the currency of Canada, unless it is made, executed, entered into, done or carried out in
(a) the currency of a country other than Canada; or
(b) a unit of account that is defined in terms of the currencies of two or more countries.
Assuming the obvious non-application of the two named exceptions, if a purported loan contract is not entered into through the provision of currency (coins and notes) of Canada by the purported lender, then prima facie, it is not a lawful contract.
The section makes two essential stipulations: (1) that every contract relating to money shall be executed in currency, and (2) that such currency shall be the currency of Canada.
Level 4. Forgery, uttering, etc. (making false document with intent)
Most mortgage documents claim, as at the date they are executed, that the purported borrower is the existing owner, and registered owner, of the property being mortgaged. In most cases the same documents will then also claim to be a receipt for the purported loan proceeds. Often, assuming that the purported loan was originally sought to obtain the named property, both of these declarations will be unequivocally false.
A typical 1995 farm mortgage, for example, purportedly evidences a loan of $87,000.00 by the Lloydminster Credit Union to Shaun Herle, Leslee Herle, Alexander Aloisius Herle and Andrea Herle on or before March 28, 1995. The document states, in material part (emphasis added):
WE, SHAUN HERLE, LESLEE HERLE, ALEXANDER ALOISIUS HERLE AND ANDREA HERLE... being registered as owner of an estate in fee simple in those lands in the Province of Saskatchewan described as follows:
FIRSTLY:
The North West quarter of Section Three (3) ... [etc.] ...
in consideration of the sum of EIGHTY-SEVEN THOUSAND... xx/100 Dollars ($87,000.00) lent [past tense] to the Mortgagor by LLOYDMINSTER CREDIT UNION LIMITED, Neilburg Branch, whose postal address is P.O. Box 56 in Neilburg in the Province of Saskatchewan, who and whose successors and assigns are hereinafter included in the expression "the Mortgagee," the receipt of which sum is hereby acknowledged, covenants and agrees with the Mortgagee as follows: (see Schedule "A" attached)
Registered with and forming part of the mortgage are three Affidavits - one by each of Leslee Herle, Alex Herle and Andrea Herle - which state (to use that of Alex Herle as an example (underlining added)):
FORM D
(Subsection 8(1) of the Homestead Act)
AFFIDAVIT
I, ALEXANDER ALOISIUS HERLE, of Neilburg, the Province of Saskatchewan, MAKE OATH AND SAY THAT:
1. I am a mortgagor.
2. My spouse is a registered owner of the land that is the subject matter of this disposition and a co-signature to this disposition.
SWORN before me at Unity, )
In the Province of ) ____[signature]__________________
Saskatchewan, on the 28th) ALEXANDER ALOISIUS HERLE
day of March, 1995.)
____[(apparent) signature of credit union’s solicitor]____
A Notary Public in and for the
Province of Saskatchewan
Being a Solicitor
Likewise, para. 7 of the mortgage contains the following material provisions (underlining added):
COVENANTS AS TO TITLE
(a) The Mortgagor has a good title to the said land;
(b) The Mortgagor has the right to mortgage the land;
(e) The Mortgagor has done no act to encumber the land.
The entire mortgage document, including the attached Affidavits, is signed, witnessed, and notarized on March 28, 1995. The relevant charges (under the Criminal Code) described in detail in the main body of the report (and briefly below) are based on the following facts (and notwithstanding the fraud discussed in Level 1):
1. The declaration of prior/concurrent performance/consideration by the credit union is false. No money or credit in respect of the loan was or had been advanced as of the March 28, 1995 sworn declaration to the contrary. According to subsequent account records, $87,000.00 of "loan proceeds" was disbursed by the credit union on May 9, 1995 (approximately six weeks later).
2. The declaration(s) of ownership of the property by the purported mortgagors was false as and when it was made on March 28, 1995.
3. The declaration(s) of registered ownership of the property by the purported mortgagors was false as and when it was made on March 28, 1995.
4. Registration of the mortgage claim by the credit union was affected on April 19, 1995 - approximately three weeks after the mortgage and affidavits to the contrary were signed, witnessed, and/or notarized - and approximately three weeks before any credit would be advanced on May 9, 1995.
Under Canadian law the provision of a false material particular within a security document will cause the document to be a false document (under s. 321(b) of the Criminal Code) even though the document is otherwise made by the person who purports to make it:
321. In this Part,
"document" means any paper, parchment or other material on which is recorded or marked anything that is capable of being read or understood by a person, computer system or other device, and includes a credit card, but does not include trade marks on articles of commerce or inscriptions on stone or other like material;
...
"false document" means a document
(b) that is made by or on behalf of the person who purports to make it but is false in some material particular;
Section 366(1)(b) then states:
Criminal Code s. 366
366. Every one commits forgery who makes a false document, knowing it to be false, with intent (b) that a person should be induced, by the belief that it is genuine, to do or to refrain from doing anything, whether within Canada or not.
The purported borrower and the financial institution are co-makers of the promissory note and/or mortgage document. The purported borrower is the maker in the sense that they sign it/them while the institution is the maker in the sense that it creates and has material control over the substance of the representations made therein. Either way, based on the assumptions mentioned above, the documents will be forgeries in law. If the institution has knowledge of the material falseness of the representations made in the documents when it registers the mortgage document then such act constitutes the offence of uttering forged (false) documents under s. 368 of the Criminal Code. (Also by s. 386 w.r.t. deceiving the registrar). And of course the institution commits a separate act of utter a forged document when it deposits the false document promissory note as a credit to the loan account.
Again in terms of the car rental analogy, it is obviously necessary for the company to take delivery of the customer's own vehicle before it can make the minor alterations so as to then loan the purported customer their own vehicle back. The principle is identical with a purported mortgage loan. That is why the documents will often state of the purported loan proceeds - "the receipt of which sum is hereby acknowledged" - even though no such funds will be, or will have been, received by the purported borrower as and when they sign the documents which claim the contrary.
The declarations are absolute and do not admit of subjective opinion. The words "the receipt of which sum is hereby acknowledged", for example, does not speak to a future contemplated act, but rather expressly to an act which has already occurred.
The same goes to a limited extent for the promissory note(s). If the promissory note is of the form "For value received, I promise to pay..." where no consideration has been in fact received as and when the instrument is signed and given over, then such an instrument is void for lack of consideration (i.e., even if the institution were loaning its own or someone else’s money).
The English language employs three primary tenses with respect to time. They are past, present, and future. A transaction which parties intend shall transpire at some future time can only be described using the future tense; it cannot be described using the past tense as that tense can only be used to described events that have already occurred.
If, as and when the promissory note is given to the institution, the "value received" is zero then the instrument is void from that point. It may be that an innocent or unintentional such mistake in the execution of a promissory note can be cured or ratified by the subsequent delivery of the consideration contemplated, but no such remedy can exist where the false statement (or null consideration) is a material element in a fraudulent misrepresentation.
Consider again the disclaimer clause discussed under 1., above, from a CIBC (conditional (i.e., overdraft or operating line of credit) loan contract:
6. Should the Bank from time to time take from the undersigned notes representing any advances by way of [this account], such notes shall not extinguish or pay such advances but shall represent the same only.
The fraudulent substance of the whole transaction is reflected in the circular argument defined by the disclaimer:
6. ...notes representing...advances...shall represent the same...
Here the bank is creating an Overdraft Account under which it agrees to make purported loans up to a certain specified amount, in this case $55,000. Because the written agreement makes it clear that no funds have as yet been advanced the paper has no value as a financial instrument, per se. If and when the purported borrower does actually draw upon the account the bank may (depending on circumstances) actually have to advance what is in effect its own money to the borrower. In such case the bank will then effectively demand, as per its para. 6, that the borrower reimburse the bank by giving a promissory note after the fact for the amount of the actual advance.
Again, this is somewhat of a special case (like a credit card account cash advance) that is procedurally more expensive to the bank because it must initially use its own funds instead of those of the purported borrower. In the vast majority of cases where a definite amount and timing is agreed upon in advance the security documents will generally falsely claim to represent a completed transaction so that the financial institution can fund the loan account with the purported borrower’s own financial instrument instead of tying up its own money.
At the end of any significant period the institutions will collectively own virtually everything while having produced nothing of substance. The mistake made in the past has been for those capable of seeing the fraud to argue for change on that basis. It is, however, far more efficient and effective to concentrate on the objectively criminal means by which the fraud is perpetrated rather than the fraud per se.
Level 5. Interest Act fraud (misrepresentation of cost of (alleged) borrowing)
Financial institutions employ all manner of dishonest device by which to conceal or disguise the cost of borrowing expressed as a rate per annum (i.e., even if they were actually lending their own or someone else's money). The most significant of these has been what are termed loan fees. Parliament has attempted on at least twelve occasions since 1880 to prohibit lenders from capitalizing their own business expenses to a borrower’s debt. In virtually every case, however, the courts ruled on ultimate appeal that these laws have some other purpose and basically refused to give them effect.
Of similar importance, especially in the more recent era, is the purported technique of "calculating" the agreed rate of interest as well as the interest payments per se. This fraudulent technique is recognized as unique to Canadian financial institutions and has been prohibited (in any form) in the U.K. since 1974 on the grounds that it has no mathematical validity and is "seriously misleading". Indeed, it is prima facie a fraud.
Other techniques discussed in the main body of the report, some more directly criminal than others, include multiple nominal accounts with prescribed minimum transfer amounts, word games with "shall" versus "may", willful subversion of legal principles, etc., etc.
Level 6. Interest Act fraud (rate misrepresentation, unlawful penalties)
Often a mortgage loan agreement will call for a penalty of usually $15 to $30 for the event of any payment not being made when due. The following, for example, is from a Canada Trustco mortgage loan contract:
Should any payment on this mortgage loan not be honoured, Canada Trustco may charge a fee for each such payment. At present the fee is $19.00 per item.
Section 8 of the Canada Interest Act expressly prohibits the charging of any penalty on arrears of principal or interest secured by mortgage of real estate:
8. (1) No fine or penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage of real estate, that has the effect of increasing the charge on any such arrears beyond the rate of interest payable on principal money not in arrears.
The act of stipulating for such a penalty theoretically strips the institution of its access to the civil courts (i.e., it forfeits its locus standi in curia) such that it cannot maintain an action (as per the explanation of Gwynne, J. of the S.C.C. in Bank of Toronto v. Perkins, [1883] S.C.R. [Vol. VIII] 603). The same principle applies to each of the seven categories mentioned at the outset. It is an axiom of free-market philosophy that the state not interfere in commercial transactions except by denying access to the civil courts through what is often termed the clean hands principle. The principle is intended to keep the system honest (emphasis in original):
CLEAN HANDS are required from a plaintiff, i.e., he must be free from reproach, or taint of fraud, etc., in his conduct in respect of the subject matter of his claim ; everything else is immaterial.
Also, such documents are on their face a fraud in that the provision itself is a representation of its validity. That is, the institution is a sophisticated financial and legal entity; the fact that it includes such a penalty provision is a de facto attestation to its legality. That misrepresentation is a fraud of itself.
Further, several of these $19 penalties were subsequently assessed in this particular case, and this involves a further wrongful act by the trust company. By signing the direct debit form, the purported borrower both directed and authorized the trust company to issue what is in effect a cheque written against the purported borrower’s account in the amount specified under the authorization/directive (see Esso Petroleum Co Ltd v. Milton [1997] 2 All E.R. 593).
The financial institution acts as the agent of the account holder in fact and in law. This is why, for example, a cheque writer can order the financial institution to stop payment on a cheque already written but before it has been presented against the account for payment.
It is, however, a crime to write a cheque against an account knowing that the cheque cannot be honoured (at the time it is written) due to insufficient funds. Section 362(4) of the Criminal Code even expressly states that, in a proceeding under s. 362(1)(a) (obtaining by false pretence), an accused is presumed to know whether a cheque they have written will be dishonoured as NSF. That section (362(4)) has since been ruled null and void (R. v. Driscoll (1987), 38 C.C.C. (3d) 28) as contrary to the presumption of innocence under the Charter of Rights and Freedoms - meaning merely that the cheque writer's knowledge of the account balance must still be established for a conviction under s. 362(1)(a). The more common term for the offence is "cheque-kiting" or "cheque- flashing" and is defined as the issuance of a liability against an account before an equivalent value has been deposited into the account (i.e., with the knowledge that there are no funds in the account at the time the cheque is written).
In the present case, the account holder’s agent, Canada Trustco, was instructed by the account holder to write a cheque, payable to itself, against the account, on a stipulated date each month. If, however, there are insufficient funds in the account, the institution must not issue the cheque because it would otherwise be committing a crime as the agent of the account holder and in their name. The institution obviously knows (or should know) that there is insufficient funds in the account but issues the cheque anyway solely to enrich itself by the $19 penalty - a penalty which it knows (or is deemed to know) is unlawful by s. 8(1) of the Interest Act.
In any event, in order to argue that it has not committed a wrongful act as the account holder’s agent by attempting to debit the amount with knowledge of the NSF status of the account, the trust company must argue that the $19 penalty is just that - a pure illegal penalty for the mortgage payment being in arrears - and not an NSF penalty per se. Either way the act itself is prima facie illegal.
Level 7 - Administration fraud (account falsification, breach of fiduciary duty)
Financial institutions systematically defraud their account holders through a large and seemingly increasing number of account manipulation techniques. These techniques range from simple deceptive word games to the direct falsification of the accounting records. The primary benefit to the reader is that even a tertiary review of these practices lays it bare that there is virtually no illegal act beyond the contemplation of a modern financial institution.
Conclusion
The "all or nothing" game has worked so well and so often in the past that the directors and legal counsel running the institutions are convinced that there is no indignity which the Canadian public will not suffer to prevent "the system" from collapsing. The reality is that these institutions produce nothing, they possess only a few billion dollars of real money and are nothing more than a sophisticated cheque-kiting operation with respect to the remaining trillion dollars of their so-called assets. They could disappear from the face of the Earth tomorrow and the vast majority of people would be radically better off.
If you have attended one of our seminars and/or are reading this first version (1.0) of the Mortgage Package then you are on the vanguard of a movement that became inevitable 300 years ago with the establishment of the privately-owned Bank of England. The core strategy of the money power elite has been to bury the truth in mountains of data that no single individual could hope to wade through in a single lifetime. But technology, and therefore time, is the natural enemy of such a strategy, and the clock is winding down.
We are truly a global village that can no longer put off dealing with the fact that those whom we have collectively trusted to manage our collective financial affairs have been stealing from us. The looters will very likely stage or provoke some act of violence so to justify changing the rules so as to escape justice. We must steadfastly resist being drawn into such a trap. The issue has gone well beyond political or economic philosophy - it is about a mass movement of resolute citizens firmly insisting on the application of the criminal law.
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