Claims case studies

These case studies are examples of some of the claims First Title has received from its insured lenders in Australia.

Crime gang forges title and identification

Identity fraud

A home owner provided his unencumbered property as security for a ‘low doc’ mortgage to purchase an investment property. The mortgage was an ‘all monies’ mortgage – a simple two-page document that incorporated a separate memorandum of mortgage filed with the Land Titles Office.

The lender registered its mortgage and purchased a Residential Loan Protection Policy from First Title. No repayments were made following settlement, so the lender commenced default proceedings.

The true owner of the property, Mr Tsai, defended the proceedings as he did not apply for the loan or receive funds at settlement. Police later uncovered the fraud, which had been perpetrated by a crime gang that had used a counterfeit certificate of title and fake identification documents.

The court found in favour of Mr Tsai. As the loan agreement had not been signed by Mr Tsai, the covenant was not enforceable against him. First Title indemnified the lender for its loss including all legal costs, which totalled in excess of A$750,000.

The ‘dodgy’ broker

Misappropriation of loan funds

Borrowers applied for a loan through a broker. The borrowers did not receive the full amount of the loan proceeds and refused to make loan repayments.

The borrowers sought to have their mortgage set aside and sought relief under the Trade Practices Act 1974 (now the Competition and Consumer Act 2010). They argued that the mortgage broker misappropriated part of the loan proceeds at settlement.

It transpired that the borrowers’ son and the broker had colluded to defraud the borrowers.

First Title obtained a valid enforceable mortgage for the lender, which was equal to the amount paid to refinance the borrowers’ prior mortgagee at settlement. First Title also reimbursed the lender for the shortfall and pursued the borrowers’ son and the broker.

The disappearing sister

Identity fraud

Our client obtained title insurance to cover a loan it was providing to fund the purchase of a residential property. During settlement, the borrower revealed she had insufficient funds to pay stamp duty. This delayed the registration of the transfer of the property into her name. It also delayed our client’s mortgage.

While the borrower was trying to gather funds to pay the stamp duty, the property was sold back to the vendor – without our client’s knowledge. The vendor then sold the property to another party. As a result, our client’s loan was unsecured.

The borrower then disappeared – a man claiming to be her brother said she was sick and that this was the reason the property was sold back to the vendor. The borrower then repaid part of the loan. Our client suspected the sale involved fraudulent activity and contacted First Title.

We retained lawyers and a private investigator. Their investigations revealed that the borrower never existed and the ‘brother’ had perpetrated identity fraud.

When confronted with this information, the ‘brother’ said he would repay the loan on behalf of his sister, whom he still alleged did exist. During negotiations, he then claimed that his sister had died. All parties reached a settlement and we ensured the lender suffered no loss by meeting its legal fees in full.

The property shopping spree

Invalidity of mortgage

A borrower obtained a loan of A$540,000 from our client to refinance an existing line of credit and purchase a second property. However, the borrower had no income and she defaulted on her loan.

The borrower commenced proceedings, alleging she suffered from seasonal bipolar disorder. Her medical condition meant she was prone to borrowing money and spending it during periods of mania. She also alleged that due to her illness, she could not recall entering into a loan. The borrower sought to have the lender’s mortgages over her properties set aside.

First Title acted on the lender’s behalf. The matter ran for more than six months and was eventually settled. We ensured the lender suffered no loss by meeting its legal fees in full.