A court has refused recovery of a $1.22mil debt under a registered mortgage where the borrower’s signature was forged by her husband.
The dispute arose out of the purchase by land valuer Craig Fitzgerald and his co-worker Dominic Lamanna of the “Shark Fin Inn Chinese” restaurant in Burwood in 2004.
Because of his poor credit history, Craig hatched a plan to transfer the surburban Melbourne home he inherited from his mother to his wife of three years, Nancy Xiao and borrow – unbeknown to her – his half of the buy price in her name.
He forged various documents to assist Nancy’s loan application including tax returns, a payslip, and the application itself. He falsified a valuation that inflated the value of the property.
After approval, he also forged her signature on the loan document, mortgage and directions for drawdown.
The first loan of $502k from Capital Securities as ‘originator’ via Perpetual Trustees as lender was made in June 2004 when ownership of the restaurant was transferred.
The pair installed Craig’s wife Nancy Xiao as manager but the venue did not perform as well as they had hoped.
By April 2009, they were in default.
Nancy only became aware of the scam when Perpetual sued and sought recovery of the family property to reduce the mortgage debt.
What the Victorian Supreme Court had to consider was whether the registered mortgage in favour of Perpetual was valid notwithstanding the forgery.
It ruled that there was indeed “indefeasibility” in respect of the lender’s mortgage but because the mortgage made reference to a loan agreement – rather than specifying a debt amount – such indefeasibility did not apply to the obligation to repay.
The combined effect was that the mortgage “secured nothing”.
Neither could it be said that Fitzgerald was acting within the scope of any agency in signing the mortgage on Nancy’s behalf.
“It is implausible that Mrs Xiao consented to her husband forging her signature whenever he saw fit,” ruled Justice Kim Hargrave “especially on documents such as mortgage that would extinguish equity in the family home”.
Perpetual succeeded nevertheless in establishing that the transfer of the home to Nancy for nil consideration created a trust in favour of the transferor, her husband.
It could recover at least some of its loss from him – by reason of his fraud – through debt proceedings that would see the home sold for the benefit of creditors including itself.