Emil Ford Lawyers

A good example of poor mortgage document procedures

In the Vella case Mr Caradonna obtained the title deeds to Mr Vella’s properties and then fraudulently borrowed money by forging Mr Vella’s signature on the mortgage documents.

A mortgage over one of Mr Vella’s properties was arranged by La Trobe with Permanent as the lender. There was no solicitor who purported to act for Mr Vella and the broker, Mr Rutty had the documents executed and sent them to La Trobe’ solicitor.

The court has summarised what happened as follows:

Warning signs were ignored

The applications were received by La Trobe in Traralgon, Victoria, where they were evaluated by a Ms Beverley Christou and a Mr Sambel. Both were strongly cross-examined, but I need not deal with the cross-examination in detail because it does not go to a principal issue, but rather to the point as to whether La Trobe and thus Permanent, failed to take reasonable care of their own interests.

Certainly the broad impression one gets from the evidence of Mr Sambel and Ms Christou was that in La Trobe, the sales department in making sure the company made loans, seemed to have a higher priority than the department (if it existed) of ensuring that there was no fraud being practised on La Trobe. The impression one gets is that everything was geared to lending money on little documentation and a relatively gung ho approach was taken as to whether the borrower was whom he or she said that he or she was.

As I say, I will not go into the full details at this stage but merely give three examples.

  • First, it would seem that whilst La Trobe had a manual directed to its lending officers as to how they should behave, this was just disregarded in practice. The result was that even though danger signs were pointed out, employees evidently were expected to ignore them.
  • Secondly, the organisation carried out a Baycorp Advantage credit search. This credit search indicated that there were “red lights” and gave suggestions as to how the warning signs should be dealt with. These were ignored.
  • Thirdly, the documents were sent to a Mr Mountford, a solicitor then practising in Noosa, Queensland, to act for the lender. Why a company in Traralgon, Victoria, taking a mortgage over NSW land would retain a solicitor in Noosa, Queensland, has never been explained.

However, Mr Mountford employed Melinda Thornhill who was an experienced former bank officer. She gave advice both to her employer Mr Mountford and to Ms Christou of what she considered were considerably impressive danger signs of fraud. She was ignored. Indeed, it might be said that in the whole of the lending process, Ms Thornhill seems to be the only person who exercised what a court would expect to be the normal precautions taken by lending institutions.

The Broker

Even if one takes the most charitable possible view of Mr Rutty’s conduct, and the extremely peculiar circumstances surrounding the execution and delivery of the transaction documentation and the making of the advances, it strongly confirms the evidence that Mr Caradonna was perpetrating fraud upon Mr Vella and the mortgagees.

At the very least, Mr Rutty must have appreciated that the dealings on which he was embarked were extremely odd, and likely to be unauthorised, and he can only have been proceeding with his eyes wilfully shut to this risk.

I have already made some remarks about the gung ho attitude of lending adopted by La Trobe. I should add to this that the impression that I formed in this case is that the “industry” involved in low document short term loans at high interest appears to depend more on good luck than good management and that there are quite a number of people involved, at least in the lower echelons who do not have profound ideas of the ethics of the situation and who are prepared to “cut corners” in order to earn a quick commission.

It may be that the industry operates on so many bad loans being covered by high interest rates, or it may be that the gung ho attitude of operatives is a cause of the American mortgage crisis. In other words, Mr Rutty’s attitudes do not so much point to him being a fraudster, rather they point to him being part of the culture of the industry. It may well be that Mr Rutty realises now what he should have done and the seriousness of what he did and did not do, and that is what has caused sleeplessness as much as any matter of guilty conscience.

I do not assess Mr Rutty as being anything more than a person who really was not fully aware of what he was doing, and thought that there was no real problem in “cutting corners”, cutting and pasting documents, using signatures from other documents etc. However, because of this attitude, he certainly in fact assisted any fraudulent purpose that Mr Caradonna may have had.


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