Unconscionable Transactions and Predatory Lenders

Predatory Lenders and Unconscionable Transactions

In Astina Mortgage Group Ltd v Galpin 2019 BCSC 1811 the court dealt with a predatory lending mortgage group and an 89-year-old widow who allegedly was taken advantage of by the unconscionable mortgage that she entered into with the petitioner mortgage group.

Ms. Galpin in turn brought an application to have the mortgage declared invalid, the order nisi of foreclosure and conduct of sale approving the sale of Galpin’s property be set aside, and the property transferred back to her.

The court granted an interim injunction allowing the said widow to remain in her property until such time as the matters set out in the court applications are finally dealt with and various ordered the mortgage company to produce documents.

An unconscionable mortgage agreement

The facts are rather startling.

Ms. Galpin was an 89-year-old retired teacher who was widowed, and lives on pensions of approximately $3000 per month. She lived in her West Vancouver home that her parents built and lives with her daughter and two grandchildren.

After her husband died in 2010 she took out a reverse mortgage on the property in order to help her daughter and grandchildren.

In 2009 she met the respondent Langenberg who befriended her and started helping her around her house calling her “mom”.

In 2010 he asked Galpin to invest in property that he was developing in Gibsons. He promised that if she invested money from her reverse mortgage she would never have to worry about money again.

She became a 50-50 partner in Salish Sea Environmental enterprises Ltd., even though she had no business experience, and all she did was provide capital.

Over the following years Galpin was convinced to take more and more money against her home for the Salish company advising her that if she does not provide more capital that she would lose all the money she had already invested.

He continually reassured her that there was no risk and that she would receive a significant return. She trusted him. By the fall of 2016 she had two mortgages registered against her home totaling $2.6 million, and both mortgages were in default.

In the fall of 2016 Langenberg through mortgage broker arranged a 15 month mortgage with the petitioner Astina four $3.275 million.

The interest-only payments per month was $24,562 for the first 12 months and $32,750 per month for the remaining three months.

The first 12 months payments which totaled $295,000 were deducted from the mortgage proceeds.

The lender fee of $147,000 and the brokers fee of $32,750 were also deducted from the mortgage proceeds.

She was advised that her home was safe as the payments towards the unconscionable mortgage would be made from the proceeds of the mortgage.

No inquiries were ever made about her income or ability to pay, nor was she ever asked to provide financial information.

Of the $3.25 million mortgage only $2.82 5 million was dispersed.

The rest went to the petitioner and were distributed to pay out the previous mortgages totaling $2.6 million, then to pay fees associated with the mortgage, and no money was advanced to Ms. Galpin.

In March 2018 Astina demanded that the mortgage was in arrears and that foreclosure proceedings in the amount of $3.4 million, and increasing at the rate of $1000 per day was not paid in full within 10 days.

An order nisi foreclosure was subsequently granted, and the property was listed for sale by Astina for $2.59 million.

Astina purchased the property itself through a court approved sale for $2.7 million, and in July 2019 the property was transferred to themselves.

Galpin had no idea that her home was in jeopardy until September 2019 when Langenberg told her that her property had been foreclosed and sold.

The court went on to review the law with respect to granting injunctive relief under rule 10 –1(1) of the Supreme Court civil rules and ordered that she may remain in the house until the litigation re the unconscionable mortgage is resolved.

Romance Scams

Romance Scams

With the growth of social media romance scams are increasingly more common and costly to its victims.

Criminal networks and unsavory characters defraud lonely people around the world with false promises of love and romance.

A romance scam is essentially a confidence trick involving feigning romantic intentions toward a victim, gaining their affection, and then using that goodwill to commit financial fraud. The fraudulent acts typically involve access to the victims money, bank accounts, credit cards ,email accounts and other identification factors. It may even involve mail-order bride scams in order to establish citizenship for the perpetrator.

Accordingly, the victims are both men and women who are typically elderly and emotionally vulnerable.

Scammers typically post profiles on dating websites, social media accounts, and classified sites in order to search for victims. With an aging population, there is no shortage of victims and the cost to them in both financial hardship as well as emotional toil, is enormous.

I have a court case at present, where a lonely opioid addicted lady met such a scammer on an online dating site and they married within weeks of meeting each other and ”falling in love” . She very quickly changed her will to make him the sole beneficiary of her approximately $5 million estate. Her children were in a state of apoplexy during their short courtship, but the more they tried to become involved in her life, the more she pushed the children away.

Typically private communications are established between the scammer and the victim, online falling in love occurs at least on the part of the lonely and vulnerable victim, and after a period of time. The scammer feels connected enough with the victim to ask for money. The excuses for the money are often imaginative, but typically fall into an urgent need for  medical or education expenses. The scammer typically tells the victim that he or she will join the victim very soon in order to have a loving and lasting relationship.

The victims are often embarrassed to come forth with their situation. In 2016 the Federal Bureau of investigation received reports that in excess of $220 million US was lost to victims that year by way of relationship scams. That amount is increasing every year.

Scammers are very talented at convincing the victims that they are sincere, and know how to “play” their victims by sending love poems/letters , and building up a loving relationship with many promises of one day we will be married.

The Internet makes this type of crime and scam relatively easy because one can pretend to be anybody one wants to be. The scammers  can be anywhere in the world and victimize people. They  basically troll the Internet looking for targets.

The scammer will often know quite a lot of information about the intended victim beforehand by reason of information already provided on social media by the victim.

The scammers intention is to establish a relationship as quickly as possible,  endear herself or himself to the victim, gain trust, and ultimately promise marriage.

The victim is typically looking for love and happiness, and thus are vulnerable to hearing the appropriate messages that the scammer is well-versed in providing.

Law enforcement state that online romance fraud  is a very difficult crime  to prove, as someone using a computer to hide behind, can be anywhere in the world. The scammer typically remains a fugitive whose real identity may not even be known. Thus it is a lucrative an easy crime to commit, and easier still to remain anonymous and beyond the reach of authorities.

To an objective observer there are often many “red flags” that the victim should have or could have realized if enough effort was put into researching the purported love interest.

Some general advice to avoid being a victim of such scammers is as follows:

1. Go slow and ask lots of questions;
2. Be wary of individuals who seem too perfect or too quick to initiate leaving a dating site to go off-line and communicate directly;
3. Beware of attempts to isolate yourself from friends and family;
4. Do not provide intimate photographs or financial information that could be used later to extort
5. Never send money to anyone you do not know personally.
6. Be at least as suspicious on the Internet as you would be if you met and unsavory character in person.

Banks and other financial institutions could greatly assist in reducing the number of romance scams if they were to become more involved in unusual financial transactions involving a senior. For example, financial institutions must automatically report any overseas transaction greater than $10,000, but the federal watchdog only investigates suspected money-laundering or terrorist financing activities, and not the financial abuse of vulnerable elders.

Unconscionable Transactions

The test for unconscionable transactions was discussed in Blunt v . Lee 2019 BC SC 351 , where at paragraph 42 the trial judge cited Hamilton v. Hamilton 2005 BCSC 1713, where the court quoted from an earlier decision in N (W.P.) v N (B.J.) 2002 BCSC 53 at paragraphs 55-56:

55. The test is stringent:

a) Was there an inequality in the position of the parties due to the ignorance, need, or distress of the weaker, which would leave him or her in the power of the stronger;

b) Is there proof of substantial unfairness in the bargain (see Klassen v Klassen 2001 BC CA 445)

c) The burden is on the party applying to set aside the agreement with respect to both parts of the test. If that burden is met, it falls to the other party to demonstrate that the bargain was fair, just and reasonable, or that no advantage was taken.

56. The policy of the law is to enforce agreements made by adult persons. Cases which separation agreements have been set aside for unconscionability have involved substantial inequality of bargaining positions with the relative unsophistication or vulnerability of one party being exploited by the other party. Usually there are factors such as asymmetrical access to financial information or undervaluation of family assets.

A number of considerations arise from the case law, including:

1. Emotional Vulnerability:

Circumstances falling short of unconscionability in the commercial law context may be relevant to accessing the parties vulnerability and the family law context – Miglin v Miglin 2003 SCC 24 at paragraph 82

However, the emotional stress of separating from one spouse does not give rise to a presumption that the parties or incapable of making a valid agreement. There must be evidence to ground a finding that one parties vulnerability was exploited in the bargaining process.

2. Duty of Disclosure

There is a duty to make full and honest disclosure of all relevant financial information when negotiating a family separation agreement. Such disclosure protects the integrity of the bargaining process.

Depending on the circumstances of each case, deliberate failure to make full disclosure may result in judicial intervention. The extent of the defective disclosure, the degree to which it was deliberate, and whether the agreement complies with statutory objectives are all relevant circumstances;

3. Professional Assistance
Vulnerabilities can be compensated for by professional assistance. However, depending on the circumstances, the court cannot always assume that the presence of professional assistance was sufficient to cure vulnerabilities

4. Independent Legal Advice

The absence of independent legal advice is an important factor, but is not, on its own, the ground for setting aside the agreement . Graham v McCartney 2013 BC SC 130

Unconscionable Transactions

Unconscionable Transactions | Disinherited Vancouver

The Supreme Court of Canada in the decision Norberg v Wynrib (1992) 2 SCR 226 reviewed the law relating to unconscionable transactions. The Norberg decision involved a family doctor who prescribed drugs to an addict in return for sexual services.

An unconscionable transaction arises in contract law where there is an overwhelming imbalance in the power relationship between the parties – Morrison v Coast Finance LTD (1965) 55 DLR (2d) 710 BCCA where at paragraph 713 the court outlined the factors to be considered in the claim of unconscionability:

“ A plea that a bargain is unconscionable invokes relief against an unfair advantage gained by an unconscious use of power by a stronger party against a weaker.

On such a claim the material ingredients are proof of inequality in the position of the parties arising out of the ignorance, need or distress of the weaker, which left him in the power of the stronger, and proof of substantial unfairness of the bargain obtained by the stronger. On proof of those circumstances, it creates a presumption of fraud which the stronger must repel by proving that the bargain was fair, just and reasonable”

In the English decision Lloyds Bank LTD the Bundy (1975) QB 326 the English court took a wider approach and develop the general principle of “inequality of bargaining power”:

“ I would suggest that through all these circumstances ie duress of goods, unconscionable transactions, undue influence, undue pressure, salvage agreements, the runs a single thread. They rest on inequality of bargaining power. By virtue of it, the English law gives relief to one who, without independent advice, enters into a contract on terms which are very unfair or transfers property for consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences are pressures brought to bear on him by or for the benefit of the other. When I use the word “undue”  I do not mean to suggest that the principle depends on proof of any wrongdoing. The one who stipulates for an unfair advantage maybe move solely by his own self-interest, unconscious of the distress he is bringing to the other. I have also avoided any reference to the will of the one being dominated or overcome by the other. One who is an extreme need may knowingly consent to most improvident bargain, so it to relieve the streets in which he finds himself. Again, I do not mean to suggest that every transaction is saved by independent advice, but in the absence of it may be fatal.”

An inequality of bargaining power may arise in a number of ways. A person may be intellectually weaker by reason of the disease of the mind, economically weaker or simply situationally weaker because of temporary circumstances. Alternatively, the weakness may arise out of a special relationship in which trust and confidence has been reposed in the other party. The comparative weakness or special relationship is in every case, the fact to be true than. As the last sentence of this passage suggest, the circumstances of each case must be examined to determine if there is an overwhelming imbalance of power in the relationship between the parties.

It may be argued that an unconscionable transaction does not, in fact, vitiate consent: the weaker party retains the power to give real consent that the law nevertheless provides relief on the basis of social policy. This may be more in line with the formulation of inequality of bargaining power in the Lloyds Bank LTD decision, where one takes into account his statement that it is not necessary to establish that the will of the weaker party was dominated or overcome by the other party. But whichever way one approaches the problem, the result is the same: on grounds of public policy, the legal effectiveness of certain types of contracts will be restricted or negated. In the same way, in certain situations, principles of public policy will negate the legal effectiveness of consent in the context of sexual assault. In particular, in certain circumstances, consent will be considered legally ineffective if it can be shown that there was such a disparity and the relative positions of the parties of the weaker party was not in a position to choose freely.