Canadian Lawyer

w w w . C A N A D I A N L a w y e r m a g . c o m A p r i l 2 0 1 4 21 rEaL EstatE Always use protection Lenders need to be much more vigilant and, to avoid liability or even forfeiture of properties, conduct solid due diligence of borrowers. by Marg. bruineMan n o matter how carefully a lawyer puts together a real estate transaction, there's always the pos- sibility of interference from a higher order. If a court sets aside all your carefully laid out covenants, the risk to the lender can be greater than the amount of the loan. The most prevalent nightmare for an institution holding a loan or a mortgage has been the possibility of environmental cleanups. When a borrower defaults on a mortgage, the lender moves to take posses- sion of the property. And only after it's too late do some discover there's an issue that has to be dealt with. If it's environmental, the cost to clean it up could well exceed the value of the property. A new risk has threatened lenders in recent years: the need to protect interests in the event of forfeiture, and possibly related liability. "It will snowball . . . it's becoming more pervasive," says Peter J. Roberts, a partner at Lawson Lundell LLP in Vancou- ver who has added civil forfeiture litigation to his portfolio in recent years. "I think it's going to get worse before it gets better." Roberts refers to the Maple Trust Co.'s success in the B.C. Supreme Court in Janu- ary, where it won relief from seizure of a property used as a marijuana grow opera- tion. Section 16 of the Controlled Drug and Substances Act allows a court to order forfeiture of an offence-related property to the federal Crown when the property has been used in a designated offence. In R. v. Nguyen, the court found the mortgage company is not a law enforce- ment agency and shouldn't be held to those standards. But the case underlines lenders do have some responsibility to ensure properties on which they hold mortgages are not used for criminal pur- poses. The government's argument was the company should have done some in- depth investigation. "It's unique in that it actually made it to court . . . but it's not unique in that it's happening more and more," says Roberts. "The government is relying more and more on civil forfeiture . . . to take the incentive out of crime." The problem is the process is some- times seen as a revenue generator. Civil forfeitures have recently come under the microscope in British Columbia, the first province to adopt provincial forfei- ture legislation. B.C. has been criticized for overly aggressive use of the strategy. In forfeiture situations, the mortgager can risk losing its investment if it is found to be "wilfully blind" to illegal activity or should have known there was illegal activity behind the source of the mortgage payments. If there's an allega- tion, the lender will have to go back to jereMy bruneel

• Cover