By Jean Sorensen
A B.C. Supreme Court justice has ruled that a mortgage company should be granted relief from forfeiture laws in the case of a seized grow-op, because the company followed standard practices of the day, exercised some due diligence and did not collude in the crime.
The B.C. Supreme Court decision ruled it was unreasonable to expect Scotiabank’s Maple Trust Company to be held to the standard of an enforcement officer when it approved the 2002 mortgage. The mortgage company followed common practices of the day and there were no indications that the house had or would be used for illegal purposes.
While the trust company was considered to have been aware of Canada’s forfeiture laws, “It should not, in my view, be held to the standard of an enforcement officer whose function it was to combat the potential for setting up marijuana grow operations in a home,” Justice Brian M. Joyce said in the reasons for judgement handed down in January. “There is no reason to suspect that the borrower was likely to use his own home, which he swore he was going to live in, as a marijuana grow operation.”
Maple Trust petitioned the court for relief from forfeiture under s. 20 of the Controlled Drug and Substances Act (CDSA), arguing it was not a party to the grow operation crime and had taken reasonable care when extending the loan.
The case stems from a December 2005 arrest after police entered the Fraser Valley home of Kien Tam Nguyen and wife, Nga Thuy Nguyen and found their 18-year-old daughter living there alone in a grow operation. In March 9, 2006, the husband and wife were sentenced to 18 months incarceration, to be served in the community under conditional sentences. The court also made an order under s. 16 of the CDSA to seize the house; the Nguyen family appeals failed. Maple Trust then filed to be exempt from the seizure.
The federal prosecutors acting for the Crown concede that Maple Trust was not complicit in the offences or guilty of collusion in the offences. “The Crown takes the position, however, that Maple Trust did not exercise the standard of care required of it when it granted the mortgage loan to Mr. Nguyen and, therefore, is not entitled to relief from forfeiture,” Joyce said in his judgement.
The case revolved around the standard of care that Maple Trust should be held to as a lender.
“Does Maple Trust have to show that, when it granted the loan, it exercised all reasonable care to be satisfied that the property likely had not been used in connection with the commission of an unlawful act, as the applicant contends, or does Maple Trust have to show that, when it granted the loan, it exercised all reasonable care to be satisfied that the property likely had not been used and would not be used in connection with the commission of an unlawful act, as the Crown contends?” the justice wrote.
Nguyen applied for a non-income qualifying (NIQ) loan for the house and the mortgage broker indicated there was nothing in his application that would have indicated a grow operation was to be set up. Maple Trust’s lending requirements from the borrower included: a statement of income from the borrower of sufficient income to service the debt; a good credit rating; a minimum down payment and verification that the down payment was the borrower’s own funds; a marketable property; and a declaration by the borrower that he was residing in the property.
Maple Trust didn’t verify the income source or amount or ask for the borrower’s tax returns or notice of assessment, which was the practice of the day. The buyer claimed to be self-employed and owned a mushroom farm. The mortgage broker taking Nguyen’s application testified in court “he had brokered hundreds of NIQ loans for Maple Trust and that the loan requirements were the same as those of other lenders.” At the time, he was unaware that there was any problem with grow operations springing up in the Fraser Valley.
There was nothing in the appraisal to indicate it had been used for any criminal activity in the past.
Joyce considered the act’s phrase that the entity seeking exemption should have “exercised all reasonable care to be satisfied that the property was not likely to have been used in connection with the commission of an unlawful act.”
Maple Trust argued that the wording “not likely to have been used” for illegal activities as set out in the act was only up to the point of the sale but not beyond. The trust company said that if those writing the law wanted the lender to assume preventative measures, it would have been spelled out more clearly such as in the Excise Act, 2001, S.C. 2002, c. 22 and the Fisheries Act, R.S.C. 1985, c. F-14.
But Joyce said he agreed with the Crown that exercising reasonable care could relate to both before and after Maple Trust acquired its interest. He interpreted the phrasing to relate to specific circumstances, such as a house identified as a grow-op going to another buyer, a renter wanting to buy the property, or someone wanting to refinance. In such cases, there was a duty to determine that the house was not being financed for future criminal activity.
“The applicant also has to demonstrate that it exercised reasonable care to ensure that it was not unwittingly used as an instrument to aid in the proliferation of such illegal uses of property. That purpose would not be met if the lender was not required to take any steps to be satisfied that the property it was financing would not be used for an illegal activity,” the justice said.
Joyce said there was “no evidence before me that the financial institutions were aware of the large increase in the number of marijuana grow operations in homes in the Lower Mainland or that they ought to have been aware based on their actual experience as of 2002. There is no evidence that financial institutions were commonly experiencing defaults or forfeitures due to the existence of marijuana grow operations on residential properties for which they had granted mortgage loans.”
The justice said it was his opinion that the Crown’s position placed “too great an obligation of surveillance on Maple Trust” and required it to consider borrowers “with a degree of suspicion that is unreasonable when one looks at the situation through the eyes of a reasonable lender in 2002.”
