LAW SOCIETY TRIBUNAL

HEARING DIVISION

Date: April 21, 2026

Tribunal File No.: 23H-058

BETWEEN:

Law Society of Ontario

Applicant

• and -

Robert Grad

Respondent

Before: Margaret Waddell (chair), Gisele Chretien, Jennifer Gold

Heard: February 13-14 and 18-19, July 8-9, October 15-16, 2025, by videoconference

Appearances:

Bernadette Saad and Nathan Prendergast, for the applicant

Daniel Kastner, for the respondent

Summary:

GRAD – Knowing Assistance – Mortgage Fraud – The Law Society made six allegations of misconduct relating to the registration of private second mortgages against the Lawyer – The lawyer admitted that he failed to serve to the standard of a competent lawyer, failed to act with honour and integrity, acted in a conflict of interest and failed to disclose all material information relevant to the transaction - The panel found that the Lawyer was willfully blind to the mortgage fraud undertaken by his borrower clients and knowingly assisted in the dishonest or fraudulent conduct of his clients – A hearing on penalty and costs is to be scheduled.

REASONS FOR DECISION ON FINDINGS

OVERVIEW

1Margaret Waddell (for the panel):– The Law Society of Ontario has made six allegations of misconduct against the Lawyer, Robert Grad, relating to the registration of private second mortgages on six properties where he had previously acted for the first mortgagee (the “Bank”) and the borrower on the registration of the first mortgage. The registration of the second mortgages was completed without the knowledge or consent of the Bank. Although the Bank’s mortgages remained in priority position, except in one case where there was a delay in discharging a prior mortgage, the registration of the second mortgages was contrary to the terms and conditions upon which the first mortgages were advanced. The second mortgages impaired the Bank’s security over the subject properties, and the borrowers’ additional debt load increased the Bank’s risk beyond what it was prepared to assume. This is a form of mortgage fraud.

2The Law Society alleges that Mr. Grad either knowingly assisted his borrower clients (or other persons) to obtain the first mortgages under false pretenses, or that he acted in circumstances where he ought to have known that he was being used to facilitate his borrower clients’ dishonesty or fraud. The Law Society also alleges that Mr. Grad commissioned false declarations, acted in a conflict of interest, and otherwise failed to serve his client, the Bank, to the standard of a competent lawyer.

Overview

3Mr. Grad has admitted, and we find on the evidence, that Mr. Grad (i) failed to serve the Bank to the standard of a competent lawyer; (ii) failed to act with honour and integrity when he commissioned false declarations and reported falsely to the Bank that he had complied with its instructions; (iii) acted in a conflict of interest; and (iv) failed to disclose in writing to the Bank all material information relevant to the first mortgage transactions before releasing the mortgage funds to the borrowers.

4Therefore, the focus of the hearing was on the question of whether:

• Mr. Grad knowingly assisted in the dishonest or fraudulent conduct of his borrower clients and/or others, or alternatively
• Mr. Grad acted in circumstances where he ought to have known that he was being used to facilitate dishonesty or fraud

5Mr. Grad admits that he was not paying sufficient attention and did not properly supervise his real estate practice and that he abdicated his professional responsibilities. His evidence is that he relied heavily on his law clerk to complete the necessary documentation for the closings, and that he only briefly reviewed the documents she prepared to ensure that the financial details were accurate.

6He testified that he did not realize that the borrowers for whom he had acted in registering the first mortgages were the same borrowers in respect of the same properties when he acted for the second mortgagees in registering the second mortgages on the same properties. The only other witness who testified about Mr. Grad’s real estate practice was his former clerk, Ms. Southwell. Ms. Southwell’s evidence did not respond to the issue of whether Mr. Grad knew that the borrowers were the same for the first and second mortgages. Her evidence was that she prepared the files and left them for Mr. Grad’s review, but she did not participate in the closing meetings with the clients.

7We do not accept Mr. Grad’s evidence that he did not know that the second mortgages were on the same properties as the Bank’s mortgages for the reasons set out below.

8In each of the six transactions, the borrowers obtained first mortgages from the Bank. In each case, the Bank included as a condition of its loan that the borrower provide a statutory declaration that no second mortgage was to be made as of the time the first mortgage was advanced. In two instances, it also required the borrowers to confirm in the statutory declaration that they had not borrowed money to make the down payment for the subject property. However, in each of the six cases, the borrowers had, in fact, borrowed money to make the down payments or to pay down pre-existing mortgages or debt. In all the secondary mortgage transactions except one, the money from the second mortgage lender flowed through Mr. Grad’s trust account. The borrowers had entered into the loan agreements with the private lenders before the first mortgage was advanced. In each case, the express terms of the agreement with the private lenders were that their loans would be secured by a second mortgage on the property, and that the registration of the second mortgage would be deferred until after the first mortgage was in place.

9In each of the six transactions, Mr. Grad acted for the borrower and the Bank in registering the first mortgage. He then acted for the second mortgagee for the registration of the second mortgage, and the borrowers were represented by other lawyers. Several of the second mortgage loan commitments were prepared by Mr. Grad’s office.

10The names of the borrowers and the property securing the second mortgage were all known to Mr. Grad, as he completed the registration of the Bank’s mortgage, often just days before the second mortgage was registered. Even if he was representing a different the party for the second transaction, there was ample information in front of Mr. Grad, not the least of which was the parcel register (which he admits he reviewed), to alert him to the fact that the second mortgages were on the same properties where he had just acted for the borrower and the Bank in registering the first mortgage.

11For the reasons that follow, we find that there is clear and compelling evidence that Mr. Grad was willfully blind to the mortgage fraud being undertaken by his borrower clients and the second mortgagees with respect to the six transactions in issue, and we therefore find that he knowingly assisted in the dishonest or fraudulent conduct of his borrower clients and/or others.

THE ALLEGATIONS OF MISCONDUCT

12The Law Society made the following six allegations of misconduct against Mr. Grad:

1. Between about October 2017 and August 2018, when acting for the borrowers and the Bank in real estate transactions involving Properties A to F (the Transactions), the respondent:

a. knowingly assisted in dishonest or fraudulent conduct by his borrower clients or other persons to obtain mortgage funds from the Bank under false pretenses; or

b. acted in circumstances where he ought to have known that he was being used to facilitate dishonesty or fraud by his borrower clients or other persons; or

c. abdicated his professional responsibilities by failing to supervise his real estate practice, contrary to Rule 6.1-1 of the Rules.

2. failed to be honest and candid when advising the Bank in connection with the Transactions, including by failing to advise that his borrower clients were receiving secondary financing from private lenders, that he was acting for private lenders in the Transactions, and that he was registering further encumbrances on title.

3. failed to act with honour and integrity in the Transactions by commissioning false declarations, including declarations in which it was asserted falsely that there was no secondary financing, or that the source of down-payments was not from borrowed funds. The respondent furthermore reported falsely to the Bank that he had complied with instructions.

4. acted for the Bank, the borrowers, and private lenders in the Transactions without disclosure to or the informed consent of the Bank, in circumstances where there was a substantial risk that his duties and loyalty to the Bank would be materially and adversely affected by his duties to his other clients.

5. failed to disclose in writing to the Bank all material information that was relevant to the Transactions before the advance or release of mortgage funds.

6. In the alternative to paragraph 2, failed to serve the Bank in the Transactions to the standard of a competent lawyer including by failing to:

a. advise the Bank that his borrower clients had obtained secondary financing, that he was acting for private lenders who were providing secondary financing to the borrowers, and that further encumbrances were being registered on title;

b. follow the Bank’s express written instructions prohibiting secondary financing and prohibiting the respondent from acting for any party other than the Bank and the borrowers;

c. take steps to protect the Bank’s interests in the primary mortgage transactions by failing to disclose important facts which were material to The Bank’s decision to loan funds; and

d. make reasonable inquiries regarding the unusual features of the Transactions.

THE FACTS

13The parties entered into a partial agreed statement of facts (ASF) that addresses the incontrovertible facts about the transactions in question and includes other admissions by Mr. Grad. The following findings of fact are made both from the ASF and the witnesses’ testimony at the hearing.

14The question of whether Mr. Grad knowingly participated in the mortgage fraud largely turns on our assessment of his credibility and whether we accept his assertion that, as his lawyer colourfully submitted, he was “spectacularly ignorant” of his obligations to his lender client and the risks of fraud arising from the second mortgage loans. In assessing Mr. Grad’s credibility, we have instructed ourselves on the legal test as set out in Faryna v Chorny, 1951 CanLII 252 (BC CA) at pp 356-357:

The credibility of interested witnesses, particularly in cases of conflict of evidence cannot be gauged solely by the test of whether the personal demeanour of the particular witness carried conviction of the truth. The test must reasonably subject his story to an examination of its consistency with the probabilities that surround the currently existing conditions. In short, the real test of the truth of the story of the witness in such a case must be its harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.

(emphasis added)

15The conditions that inform our credibility assessment include all of the documentary evidence for each of the subject transactions; the timing of and instructions for the registration of the second mortgages; the fact that some of the second mortgage funds flowed through Mr. Grad’s trust account, and the timing thereof; his evidence to the Law Society investigator; and his initial response to the Law Society after receiving the complaint.

16We find that Mr. Grad’s testimony is not, as stated in Faryna, in “harmony with the preponderance of the probabilities which a practical and informed person would readily recognize as reasonable in that place and in those conditions.” We explain our conclusion below. His evidence that he did not know the transactions involved the same properties where he had already acted for the borrowers and the Bank is simply not credible.

Mr. Grad’s law practice

Generally

17Mr. Grad was called to the bar in 2014, and started his own firm in October 2015, after articling and working for about a year at a general practice law firm.

18In addition to his Ontario call, Mr. Grad has also been called to the Bar in New York and in Florida. He operates a small practice in Florida as well as his Ontario law firm.

Focusing on real estate

19During his articles and first year of practice in Ontario, Mr. Grad obtained some exposure to real estate matters, but he did not receive comprehensive training about the complexities of these transactions.

20The six mortgage transactions in question took place between October 31, 2017 and August 2018. At the time, Mr. Grad was still a relatively new call. His evidence was that he was too naïve at the time to understand that he was assisting in mortgage fraud. However, Mr. Grad took continuing legal education programs in 2016-2018 including courses on real estate, so he was not entirely naïve.

21It was apparent from his evidence that during the relevant time, Mr. Grad focused most of his attention on his litigation practice, and he considered the real estate transactions to be an incidental source of revenue, which did not require much of his time or attention, and that was largely mechanical and clerical in nature. That said, his evidence demonstrated that he was well aware of the necessary steps to complete a purchase and sale and for the registration and discharge of mortgages on title. He knew that the Bank provided instructions to him, and that he was obliged to follow those instructions. He was required to, and did confirm to the Bank that the instructions had been followed, and the conditions for the Bank’s loan had been met. But he knew that these conditions had not been met.

22To operate his real estate practice, Mr. Grad had obtained the necessary software for obtaining lenders’ instructions and registering instruments on title. He had familiarized himself with how these systems worked. He knew that instructions from the lending bank would come through an electronic portal. He knew he was responsible for registering the mortgage documents in land titles, and for confirming to the Bank that he had followed its instructions.

23Mr. Grad was aware that the lending Bank would prepare a mortgage commitment setting out the terms upon which it was lending funds to each borrower, and that the mortgage was to be prepared in keeping with the mortgage commitment. He knew that there could be additional terms in the mortgage commitment in addition to the basic financial terms, such as a requirement that the borrower sign a statutory declaration, which he would have to prepare and then execute with the borrower client. He knew that he would have to report to the Bank following the closing, and confirm that he had complied with the Bank’s instructions.

24We accept Mr. Grad’s evidence that from his early experiences at his first firm, he had the erroneous impression that most of the work for a real estate transaction could be competently undertaken by law clerks, and that he only needed to meet with the clients to complete a cursory review of the transaction details with them, and have the clients execute the relevant documents. We accept that he had not reviewed the Bank’s standard charge terms, which was part of his overall failure to meet the standard of a competent lawyer. However, the breaches in question here do not arise from the standard charge terms, but from specific conditions on which the mortgages were being advanced by the Bank to each of the borrowers.

25We accept that Mr. Grad paid little attention to the details of the transactions, or the terms of the mortgages. He relied on his clerk to ensure that the documentation was prepared accurately, including preparing the trust cheques for his signature for any payments out of trust. The evidence shows that there were many errors in the documents that the clerk prepared, which also demonstrates Mr. Grad’s failure to meet the standard of practice.

26While Mr. Grad may not have reviewed the standard charge terms, he did testify that he read the terms of the Bank’s mortgage commitments and its instructions to him. He did not testify that he was unaware of the Bank’s requirement that there could be no secondary financing at the time that the Bank advanced its first mortgages. We find that Mr. Grad was aware of these terms of the mortgage commitments, and that, based on the Bank’s instructions, he was obliged to report his knowledge of secondary financing to the Bank, which he failed to do.

27In the period between 2016 to 2018, Mr. Grad’s firm handled approximately 255 real estate transactions – on average seven or eight per month, which is not a sufficiently large number of transactions that Mr. Grad might not have been fully cognizant of the names of the parties to each transaction and the properties that were being encumbered. We do not find Mr. Grad’s evidence that he did not appreciate that the transactions related to the same borrowers on the same properties to be credible.

28In or about 2016, Mr. Grad started a business arrangement with Verena (Veda) Lall, who was, at the time, a registered mortgage broker and real estate agent. She is no longer a mortgage broker. Ms. Lall referred residential real estate transaction clients to Mr. Grad’s firm. She also referred private mortgage lenders to Mr. Grad. In all six of the transactions at issue, Ms. Lall was the mortgage broker responsible for arranging both the first mortgages with the Bank, and the secondary mortgages with the private lenders.

29From December 2016 to October 2018, Mr. Grad contracted Christa Southwell, an experienced real estate clerk, to assist with his growing real estate practice. Mr. Grad trusted Ms. Southwell to prepare all the relevant documentation for the real estate transactions for which he had been retained, including with respect to the six properties in issue here. He considered Ms. Southwell to be more knowledgeable about real estate transactions than he was, and so paid little attention to the documentation that she prepared other than to ensure that the financial terms matched the commitment and his instructions from the lenders. Mr. Grad admits that he failed to adequately supervise Ms. Southwell’s work, including with respect to the transactions in issue. Mr. Grad admits that he failed to meet the standard of a competent real estate practitioner with respect to the transactions in issue, including his failure to properly supervise Ms. Southwell.

30The evidence of Ms. Southwell and Mr. Grad was largely aligned. Ms. Southwell prepared all the required documents for his real estate clients. She worked independently, and she left the completed files for Mr. Grad to review prior to his meeting with the clients. This included the draft closing documents including statutory declarations, draft trust statements or ledgers, and trust cheques that would require his signature. Sometimes she also performed the electronic registrations after the documents were executed. However, that is where her responsibility ended. There was no evidence adduced by either the Law Society or Mr. Grad to the effect that Ms. Southwell registered any of the second mortgages without Mr. Grad’s knowledge or approval, or that the secondary mortgage funds were advanced out of Mr. Grad’s trust account without his knowledge. He signed all trust cheques and approved the trust transfers.

31We find that Mr. Grad reviewed the materials completed by Ms. Southwell, including a review of the lenders’ letters of instruction and mortgage commitments from both the Bank and the secondary mortgage lenders. He met with the clients and reviewed the documents with them. There is no evidence that Mr. Grad did not review the transaction documents, or that he was unaware of the Bank’s instructions or the secondary mortgage lenders’ instructions. He expressly confirmed to the Bank both with his interim report and his final report that he had complied with the Bank’s instructions. He prepared and reviewed the Forms 9D and 9E with the secondary mortgage lenders.

32Specifically, in each of the six cases in issue, the Bank provided a letter of instruction to Mr. Grad that set out what he was required to do.

33Mr. Grad also was provided with a copy of the Bank’s commitment letter to the borrowers, which set out the terms upon which the mortgage was being advanced. Mr. Grad had to review the instructions and the mortgage commitments to ascertain what documentation was required and the terms of the loans, and to fulfil his obligations to the borrower and the Bank. We find that Mr. Grad was aware of the Bank’s mortgage commitment terms from his own review of the documents, and from the terms that were set out in the statutory declarations that the borrowers signed and he commissioned.

34In each case, the statutory declarations confirmed that the borrowers had not entered into any second mortgage financing at the time that the first mortgage was advanced. This was false, and Mr. Grad has admitted that they were false. We find that Mr. Grad knew that the statutory declarations were false at the time they were commissioned.

35It may be that Mr. Grad thought that so long as the Bank remained in first priority it was fully protected, as he argued in the responding letter that he sent to the Law Society, and that he did not appreciate that the second mortgage increased the Bank’s risk beyond that which it was willing to assume. However, all the necessary facts were directly before him, including the express conditions on which the Bank was prepared to lend, the Bank’s instructions to Mr. Grad, and the statutory declarations that the borrowers were obliged to sign. In the face of these clear indicators of the limits to the risk that the Bank was prepared to lend, we conclude that the only reasonable explanation for Mr. Grad’s failure to identify the fraud being perpetrated by the borrowers and the secondary lenders was willful blindness to the facts in front of him.

36One of the second mortgage lenders, Mr. Haiyat, had been a client of Mr. Grad for other services, and asked Mr. Grad if he would act on second mortgages. Mr. Haiyat told Mr. Grad that he was not happy with his current lawyer. Although Mr. Grad did not have experience with second mortgages, he confirmed that he would be able to assist. Thereafter, Mr. Haiyat, through his company, engaged Mr. Grad’s firm for multiple second mortgage transactions, not just the transactions in issue in this hearing. We find that the conflict of interest arising from Mr. Grad’s desire to build his practice and to keep Mr. Haiyat as a returning client was a factor that led to his willful blindness to the frauds.

37For the secondary financings, there were no formal letters of instruction from the lenders. The instructions typically came through the mortgage broker, Ms. Lall, and were conveyed to Ms. Southwell. Either Ms. Southwell or Ms. Lall prepared the secondary mortgage commitment letters that were provided to the borrowers, and which set out the terms upon which the secondary mortgages were being advanced. Mr. Grad had to review the mortgage commitment letters to fulfil his obligations to the secondary lender, including ensuring that the terms of the second mortgage complied with the terms of the commitment letter. Each of these commitment letters set out that the second mortgage was to be registered after the registration of the Bank’s mortgage. Each of these commitment letters was dated prior to the closing of the first mortgage. These were obvious red flags of fraud.

38The private lender secondary financings were not routine transactions, and Mr. Grad did not have experience in second mortgages before he agreed to take on the work with Mr. Haiyat, and then other private second mortgage lenders. We do not accept Mr. Grad’s evidence that he completed the secondary financing transactions without reviewing all the terms of the mortgage commitments with his secondary lender clients. He had to do so to ensure that the charge terms were correct, and to ensure that the requisite Forms 9D and 9E were completed accurately. He would also have had to review the parcel register to ascertain that the second mortgage could be registered in second place to the Bank, which was a condition of each of the second mortgages.

39From all of this, we conclude that Mr. Grad knew that the second mortgages were being registered on the same properties where the Bank’s mortgage was already on title. He knew that the instructions from the secondary lenders were that their mortgage was not to be registered until after the Bank’s mortgage was in place, and that the commitment for the secondary mortgage was provided before the Bank’s mortgage transaction closed. We find that Mr. Grad knew that the properties and the borrowers were the same as the properties and the borrowers in the mortgage transactions completed for the Bank. His evidence that he did not pay sufficient attention to notice that the second mortgages were for the same borrowers on the same properties is not credible.

40The transactions involved the same borrowers and the same properties, which would have been self-evident from the transaction documents. The Bank’s first mortgage registrations were patent on the title to the properties at the time that the second mortgages were registered. Mr. Grad had a copy of the parcel register when he was completing the registration of the second mortgage. The prior registrations were completed by him shortly prior to the second mortgage registrations, and showed that his office completed the registration for the Bank. If he did not identify that he or his office had registered the first mortgage on title and that the borrowers were the same borrowers he had already acted for, then it was because he did not pay any attention to the documents that were before him. This would have been a failure to meet the standard of practice for both the second mortgagee and the first mortgagee. Rather, we conclude that Mr. Grad did know that the transactions involved the same borrowers on the same properties, but he wrongly believed that his duties to the Bank ended with the registration of the first mortgages, leaving him free to then act for the second mortgagee on the subsequent transactions. Mr. Grad failed to ask himself how he could act for the second mortgagee contemporaneously with the first mortgagee, which is what happened in these cases.

41Since the Bank filed its complaints with the Law Society, Mr. Grad has, for the most part, stopped practising real estate, focusing his practice on litigation matters. He acknowledges that during the period in issue he did not have a sufficient understanding of his duties and obligations as a lawyer practising in the area of real estate.

42Mr. Grad’s lack of experience and training in the complexities of real estate transactions, his failure to follow and comply with the terms of the Bank’s mortgages and its instructions, his failure to pay the necessary attention to the documentation required to effect the closings of the second mortgage transactions, his failure to identify his ongoing reporting obligations to the first mortgagee Bank, and his failure to pay sufficient attention to the transactions taking place in his own trust account, all resulted in six transactions where the homeowner borrowers perpetrated a fraud on their primary mortgage lender, the Bank.

43We find that Mr. Grad’s failures arose from his willful blindness. All the indications that the borrowers were perpetrating a fraud were before him, including the receipt of the private mortgage funds into his trust account from the second lender in all but one of the cases before or at the same time as the first mortgage closing. He clearly ought to have asked additional questions of the borrower clients and the private lender clients about the source and purpose of the funds he received prior to the closing of the first mortgage; but he chose not to do so. We find that Mr. Grad did not ask these questions because he did not want to know the answer, as knowing the answer and proceeding nonetheless and without disclosure would clearly conflict with his duties owed to the first mortgagee, the Bank.

The mortgage transactions

44In each of the six transactions, the borrowers obtained secondary mortgage loans from private lenders through Ms. Lall as their mortgage broker. They had secured this financing before the Bank advanced the funds on closing of the first mortgages. The borrowers used the private loans to make down payments, pay off existing mortgages, or to repay their other debts. Ms. Lall arranged for Mr. Grad to be retained to act for the private lenders on the closing of these second mortgage transactions, and the borrowers retained different lawyers to act for themselves. The switching of the borrowers’ representation to a different law firm, rather than Mr. Grad continuing to act for the borrowers (who were already his clients), was irregular, and should have caused Mr. Grad to ask why the legal representation was being changed for the second transaction. We find that Mr. Grad did not ask this question because he did not want to know the answer, as the answer would have been another red flag that the second mortgage was fraudulent. The switch in representation, presumably, was a crude attempt by Ms. Lall to create a situation where the lawyers acting on the second mortgage transaction might be able to deny knowledge of the breach of the terms of the Bank’s mortgage.

45Mr. Grad received and accepted instructions for the first transactions from the Bank. The instructions prohibited him from acting for any party other than the Bank and the borrowers without the Bank’s consent. Mr. Grad was required to inform the Bank of any issues of importance and to advise the Bank’s service provider, FCT, of any material facts that might affect the Bank’s decision to make the loan. In each case, Mr. Grad confirmed that he would, and that he had satisfied all the conditions and requirements in the Bank’s instructions prior to closing.

46Each of the six second mortgages were registered by Mr. Grad either days, weeks, or a few months after the private lender had advanced the second mortgage funds. The delayed registration gave the false appearance that the borrowers did not obtain the funds until after the Bank’s mortgages had been advanced. During his interview with the Law Society, the investigator pointed out to Mr. Grad that the second mortgage loans had been advanced well before the second mortgages were registered. Mr. Grad acknowledged that the situation left the second mortgagee unsecured for a period of time. Yet, at the time, Mr. Grad did not ask why the second mortgagee had advanced the funds and was content to remain unsecured until after the Bank’s mortgage was registered. We find that Mr. Grad did not ask that question because the answer would have identified to him that the borrower and the second mortgagee wanted to hide the fact of the secondary financing from the Bank. That was information that Mr. Grad did not want to know, as he would have had to disclose it to the Bank.

47A disproportionate amount of time at the hearing was spent debating whether it was Mr. Grad or his law clerk who completed the electronic registration of the subject mortgages. The ASF is binding on Mr. Grad, and it states that it was he who completed the transactions. We are bound to act on formal admissions before us, even if other evidence contradicts the admission: Serra v Serra, 2009 ONCA 105 at para 106.

48Even if Ms. Southwell did use Mr. Grad’s credentials or her own credentials to complete the registrations in some of Mr. Grad’s real estate files, ultimately, Mr. Grad was the lawyer responsible for the contents of the registered documents and the registrations made by his office. There was no evidence that Mr. Grad was not aware of the information on the registered documents, or that Ms. Southwell ever acted on a lark of her own and without Mr. Grad’s instructions or his knowledge of the clients and the transactions when she completed any registrations. Who hit “send” on the registrations is immaterial to our findings on the question of mortgage fraud.

49Although Mr. Grad acted for the Bank in registering the first mortgages, he never did advise the Bank that he was also acting for private lenders who were registering second mortgages on title to the same properties. As set out below, the retainers were often concurrent. The fact that the borrowers were obtaining additional financing from private lenders to either complete the purchase of the property or to be able to refinance existing mortgages was highly material information that Mr. Grad was required to convey to the Bank under the terms of his retainer. He never did so.

50Nor did Mr. Grad seek the Bank’s consent to his acting for the secondary lenders or for the registration of the second mortgages on title, even though he was not permitted to act for anyone other than the Bank and the borrower. Mr. Grad testified that he thought that once the first mortgages were registered on title, his obligations to the Bank were at an end. This is not correct. Moreover, the retainers were concurrent, so the obligation to disclose already existed at the time the Bank advanced its funds and its mortgages were registered.

51The Bank’s mortgage commitment terms and instructions were in standard form. The mortgage commitments each provided:

• the mortgage would be a first priority mortgage;
• the maximum loan to value ratio for the mortgage would not exceed a specified percentage of the value of the property; and
• the borrower must provide a statutory declaration that no secondary financing was being placed on the property on the date of the advance.

52For Properties A and F, the mortgage commitments also included a term that the borrowers’ statutory declaration included a declaration that the down payment is not borrowed against the subject property.

53It was incumbent upon Mr. Grad to discuss the terms of the statutory declarations with the borrowers to ensure that the declarations were accurate. If he had reason to believe that the declarations were not truthful, then he ought not to have executed them. In each of these transactions, Mr. Grad ought to have known about the secondary financing, but failed to inform himself by asking the borrowers about the source of the funds to complete the transactions and/or reviewing his own trust ledgers where the firm had received the funds from the private lender.

54The key terms and facts relating to the transactions are set out below.

Property A

• Bank mortgage to finance purchase.
• Mortgage commitment dated September 15, 2017, signed September 24, 2017.
• First Mortgage funds advanced on November 9, 2017.
• Mortgage commitment drafted using a precedent from Mr. Grad’s office signed October 20, 2017, confirming Bank’s first mortgage.
• Haiyat second mortgage funds of $111,700 paid into Mr. Grad’s trust account by the borrowers on November 9, 2017 to pay down payment to purchase Property A.
• First Mortgage registered November 10, 2017.
• Second Mortgage registered November 24, 2017.

Property B

• Bank mortgage refinancing required existing mortgages to be discharged using mortgage proceeds.
• Mortgage commitment signed October 27, 2017.
• First Mortgage funds of $497,777 paid to Mr. Grad’s trust account on November 24, to be advanced on November 30, 2017.
• 254 Inc. second mortgage funds of $164,000 paid into Mr. Grad’s trust account on or October 31, 2017, and used to pay off existing second mortgage, discharged by another law firm on November 3, 2017.
• Mortgage commitment drafted using a precedent from Mr. Grad’s office signed dated November 21, 2017; signed on December 5, 2017, with a closing date of November 30, 2017.
• $55,146 of the money advanced by the Bank was transferred to the client trust ledger for 254 Inc. on November 24, 2017, and then a further transfer of $55,000 was made to client trust ledger #319 (Yashoda Sukhnandan).
• First Mortgage registered November 24, 2017.
• Prior second mortgage discharged November 3, 2017.
• Second Mortgage registered December 5, 2017.

Property C

• Bank mortgage refinancing required existing mortgage and second mortgage to be discharged using mortgage proceeds. The Bank also required repayment of certain other borrower debts prior to closing.
• Mortgage commitment signed November 21, 2017.
• Bank’s funds advanced on January 29, 2018.
• Haiyat advanced $160,000 to Mr. Grad’s trust account, of which $80,000 was immediately used as a partial repayment of an existing mortgage from 248 Inc. on Property C.
• Haiyat mortgage commitment was drafted using a precedent from Mr. Grad’s office, and signed November 24, 2017, with closing for the same date.
• Haiyat funds used to pay other borrower debts on November 24 and 30, 2017.
• On December 6, 2017, $44,000 and $8,700 of Haiyat’s funds transferred to the trust ledger for 248 Inc.
• First Mortgage registered January 29, 2018.
• Prior second mortgage discharged January 29, 2018 by payment of $51,425 to 248 Inc., and $60,272 paid to 222 Ltd. (a company owned by Maraj).
• Haiyat Second Mortgage registered March 26, 2018.

Property D

• Bank mortgage commitment dated February 16, 2018, to be advanced on March 23, 2018.
• Bank mortgage refinancing required existing mortgage and private mortgage to be discharged using mortgage proceeds, along with payment of certain borrower debts.
• Second mortgage commitment prepared by Mr. Grad’s office was dated March 1, 2018, and signed on March 22, 2018, with a closing date of March 30, 2018.
• A second mortgage of $53,500 advanced into Mr. Grad’s trust account on March 21, 2018, the same day as the Bank advanced its funds. The second mortgage proceeds were used to partially pay an existing private mortgage and certain borrower debts prior to Bank’s closing.
• First Mortgage of $127,699 advanced on March 21, 2018 and mortgage registered March 22, 2018.
• Second Mortgage registered April 5, 2018.

Property E

• Mortgage commitment dated March 12, 2018 with advance date of April 6, 2018, signed by borrowers on March 14, 2018.
• Bank mortgage refinancing required existing private mortgages to be discharged using Bank’s mortgage proceeds.
• Proceeds of $53,460 advanced on April 4, 2018.
• Balance of the proceeds used to pay the private lender on April 6, 2018.
• Second mortgage commitment was drafted using a precedent from Mr. Grad’s office. A preliminary version was signed by the borrowers on March 23, 2018. A second commitment dated April 9, 2018 was signed by the borrowers on April 10, 2018 and witnessed by Mr. Grad.
• $10,191 transferred from Bank’s trust ledger to secondary mortgagee’s ledger on April 4, 2018.
• April 5, 2018: trust cheque issued payable to 254 Inc to discharge second mortgage.
• April 6, 2018: $10,191 is transferred between trust ledgers for 254 Inc.
• First Mortgage registered and funds advanced April 4, 2018.
• Second Mortgage registered April 17, 2018.

Property F

• Bank mortgage to finance purchase.
• Mortgage commitment signed July 11, 2018 to be advanced on July 31, 2018.
• Mortgage funds of $539,885 advanced on August 8, 2018.
• July 17, 2018 private mortgage commitment prepared by Mr. Grad’s firm.
• Mortgage funds of $140,000 advanced on July 31, 2018 and applied to purchase on August 8, 2018.
• First Mortgage registered August 9, 2018.
• Second Mortgage registered: September 14, 2018.

Property A

55With respect to Property A, the second mortgage proceeds were paid directly to the borrowers prior to November 10, 2017. However, Mr. Grad’s draft trust statement for the second mortgage closing falsely represented that the net proceeds of $105,000 flowed through his trust account, and were received and then disbursed to the borrowers prior to November 10, 2017.

56The borrowers did pay into Mr. Grad’s trust account $111,700 on November 9, 2017.

57On November 9, 2017, Mr. Grad commissioned the borrower’s statutory declaration, which included two false statements:

• The downpayment is not borrowed, but of my/our own resources.
• There is no secondary financing being placed on the Property on the Date of Advance.

58Before the funds were advanced by the Bank, and following the closing, Mr. Grad confirmed to the Bank that he had complied with its instructions and requirements.

59The combined loan to value ratio of the two mortgages exceeded 100% of the appraised value of the property, well above the maximum 80% loan to value ratio permitted by the Bank.

60The Forms 9D and 9E relating to the second mortgage in Mr. Grad’s file relating to the second mortgage contained inconsistencies, demonstrating a lack of attention to detail.

Property B

61The Bank’s directions to Mr. Grad included, along with the standard requirements referenced above, that the existing mortgages be discharged from the mortgage loan proceeds, that a discharge statement be provided to it, and that the remaining proceeds of the loan were to be used to pay other enumerated debts of the borrowers.

62Mr. Grad received the funds from the private lender, 254 Inc., on or before October 31, 2017. In his interim report to the Bank, Mr. Grad advised that the second mortgage had been discharged on November 3, 2017, but he did not flag that this was inconsistent with the Bank’s instructions, or disclose the source of the funds for the second mortgage discharge.

63On November 24, 2017, the Bank advanced the mortgage proceeds to Mr. Grad’s firm. On the same day, a trust transfer of over $55,000 was made in favour of the second mortgagee and Lall’s broker’s fee of $3,500 was paid from the mortgage proceeds.

64On November 9, 2017, Mr. Grad commissioned the borrower’s statutory declaration which included two false statements:

• The downpayment is not borrowed, but of my/our own resources.
• There is no secondary financing being placed on the Property on the Date of Advance.

65The new second mortgage commitment on behalf of 254 Inc. confirmed that the second mortgage was to be registered subsequent in priority to the Bank’s mortgage, and that over $55,000 from the Bank’s mortgage proceeds were to be used to repay the second mortgagee. $50,000 of the payment received by the second mortgagee was immediately paid out to another borrower on behalf of the second mortgagee.

66The combined loan to value ratio of the two mortgages was 80% of the appraised value of the property, well above the maximum 60.84% loan to value ratio permitted by the Bank.

Property C

67The Bank’s directions to Mr. Grad included, along with the standard requirements referenced above, that the existing second mortgage be discharged from the mortgage loan proceeds, and that a discharge statement be provided to it. The discharge statement prepared by the original second mortgagee included a credit for a partial payment made before the payout date of January 16, 2018.

68Grad’s firm received the new second mortgage proceeds into trust from the new second mortgagee on November 24, 2017, and the partial repayment to the existing second mortgagee was paid from the trust funds the same day. The new second mortgage proceeds were also used to pay the debts that the Bank required to be paid before it would advance the new first mortgage proceeds. Thereafter, further funds were paid from the new second mortgage trust funds to the existing second mortgagee on December 6, 2017. All the payments to the existing second mortgagee were supposed to be paid from the Bank’s mortgage advance.

69The second mortgage commitment letter confirmed that the funds were being advanced on November 24, 2017, but that the mortgage was to be registered “at the lender’s discretion” subsequent to the Bank’s first mortgage schedule to close on December 21, 2017.

70Mr. Grad confirmed to the Bank that he would, and that he had satisfied all the Bank’s requirements outlined in the instructions prior to closing.

71On January 15, 2018, Mr. Grad commissioned the borrower’s statutory declaration, which falsely stated:

• There is no secondary financing being placed on the Property on the Date of Advance.

72Mr. Grad’s file did not contain a copy of either the Form 9D or 9E required by the Law Society.

73The combined loan to value ratio of the Bank’s mortgage and the new second mortgage was 99% of the appraised property value, well in excess of the 80% maximum required by the Bank.

Property D

74The Bank’s directions to Mr. Grad included, along with the standard requirements referenced above, that the existing mortgages be discharged from the mortgage loan proceeds, and that the remaining proceeds of the loan were to be used to pay other enumerated debts of the borrowers.

75Mr. Grad was included in an email from Ms. Lall dated February 27, 2018, in which Ms. Lall asked Ms. Southwell to prepare the private mortgage commitment for the second mortgage, and she stated, “You are closing out the first and paying off the existing second mortgage and reregistering a new second.” There can be no doubt that Mr. Grad was well aware for this transaction that the second mortgage related to the same property as the Bank’s first mortgage, and he knew that well in advance of the March 22, 2018 closing of the Bank’s transaction.

76Mr. Grad was retained on the second mortgage transaction just a few days later, on March 1, 2018. He did not advise the Bank about this retainer, contrary to the terms of his retainer with the Bank.

77Mr. Grad’s office prepared the second mortgage commitment, which was dated March 1, 2018, and signed by the borrowers on March 22, 2018. It stated that it was to be registered subsequent to the Bank’s mortgage.

78The funds for the second mortgage were advanced to the borrowers on March 21 and 22, 2018.

79Mr. Grad confirmed to the Bank that he would, and that he had satisfied all the Bank’s requirements outlined in the instructions prior to closing, including using part of the proceeds of the Bank’s loan to pay out the existing mortgages.

80On March 20, 2018, Mr. Grad commissioned the borrowers’ statutory declaration, which included two false statements:

• There is no secondary financing being placed on the Property on the Date of Advance; and
• There will be no secondary financing placed on the property at closing.

81Mr. Grad’s closing documents for the second mortgage included a borrower’s Acknowledgement to the private lender that the funds had been advanced on or about March 22, 2018 to pay off debts. The Form 9D prepared by Mr. Grad’s office confirmed that the private mortgage was ranked second to the Bank’s mortgage registered on March 21, 2018. It also put the loan to value ratio of the property at 83%. The unsigned Form 9E stated that the second mortgage funds were advanced on March 22, 2018 – the same day that the Bank’s funds were advanced, but in fact the funds were received in trust by Mr. Grad on March 21, 2018. The second mortgage was registered on title on April 5, 2018.

82The combined loan to value ratio of the Bank’s mortgage and the new second mortgage was 82% of the appraised property value, in excess of the 74.68% maximum permitted by the Bank.

Property E

83The Bank’s commitment prohibited secondary financing and required that the existing mortgages on the subject property be discharged using the Bank’s mortgage proceeds.

84Ms. Southwell calculated the amount required to pay out the existing private mortgage and for the new second mortgage, establishing the amount that was being “reborrowed”.

85Mr. Grad confirmed to the Bank that he would, and that he had satisfied all the Bank’s requirements outlined in the instructions prior to closing, including using part of the proceeds of the Bank’s loan to pay out the existing mortgages.

86On March 29, 2018, Mr. Grad commissioned the borrowers’ statutory declaration, which included two false statements:

• There is no secondary financing being placed on the Property on the Date of Advance; and
• There will be no secondary financing placed on the property at closing.

87After receiving the Bank’s advance on April 4, 2018, the firm only used part of the funds to pay down the existing private mortgage. The balance of the existing mortgage was paid out by the proceeds of the new secondary mortgage, which were received prior to April 4, 2018. A matter-to-matter transfer of trust funds was recorded on April 6, 2018, and a further $3,500 was received in trust on April 9, 2018. On April 24 and 25, the final disbursements of funds were made from trust to the borrowers, the firm, Ms. Lall, and the private lender, all in keeping with Ms. Southwell’s calculations.

88The new secondary private mortgage was then signed on April 10, 2018. The commitment, which was witnessed by Mr. Grad, included terms that the mortgage was to be registered subsequent to the Bank’s mortgage, and that this loan was “a refinance of their existing mortgage which will be paid down by the new first mortgage with [the Bank]”.

89The Form 9D for the new private second mortgage confirmed that the mortgage ranked second to the Bank’s first mortgage. It confirmed the loan to value ratio was 85%. This was signed by the private lender on April 6, 2018. The Form 9E in Mr. Grad’s file was unsigned and undated, but confirmed an advance date of April 10, 2018. However, no funds were advanced in the transaction, as the funds notionally paid out the existing mortgage and then were readvanced for the new second mortgage.

90There can be no doubt that Mr. Grad understood that this private mortgage was being registered subsequent to the Bank’s new first mortgage that he had just registered days before. In fact, his reporting letter to the borrowers dated April 4, 2018 made reference to the new second mortgage, even though Mr. Grad did not act for the borrowers in that secondary financing. The letter stated that the closing of the second mortgage was April 4, 2018 – the same day the Bank advanced its funds.

91The combined loan to value ratio of the Bank’s mortgage and the new second mortgage was 85% of the appraised property value, in excess of the 80% maximum permitted by the Bank.

Property F

92Mr. Grad’s firm was retained for the secondary mortgage by an email between Ms. Lall and Ms. Southwell dated July 12, 2018. The private mortgage commitment was prepared by Ms. Southwell and sent to Ms. Lall on July 17, 2018. It had a closing date of July 31, 2018. It confirmed that a new first mortgage would be registered in favour of the Bank.

93Mr. Grad’s firm received a bank draft from the private lender on July 31, 2018, which was used by the borrowers towards the purchase of the subject property. Three days later, he commissioned the borrowers’ statutory declaration that contained three falsehoods:

• The downpayment is not borrowed, but from my/our own resources;
• There is no secondary financing being placed on the Property on the Date of the Advance; and
• There will be no secondary financing placed on the property on closing.

94Mr. Grad confirmed to the Bank both that he would comply with, and that he had satisfied all the Bank’s requirements outlined in the instructions prior to closing.

95The closing documents for the second mortgage are not consistent with the transactions. The borrower’s Acknowledgement acknowledges receipt of $10,000 less than the amount advanced by the private lender, and that they were advanced on August 9. 2018 (the closing date). The Form 9E confirmed the full amount of the lender’s advance, and identified the advance date as August 1, 2018. It confirmed that the private mortgage ranked second to the Bank’s mortgage.

96The combined loan to value ratio of the Bank’s mortgage and the second mortgage was over 100% of the appraised property value, well in excess of the 80% maximum permitted by the Bank.

97What can be seen from each of these transactions is that they were all closely related in time and intimately connected with respect to the transfers of funds in and out of Mr. Grad’s trust account. We conclude that Mr. Grad knew about the flow of the funds in and out of his trust accounts, including who the payors were and who the recipients were, as this was all documented in the trust ledgers. Mr. Grad could not and did not approve and effect these transactions without knowing who the clients were and the nature and the purpose of the transactions.

Mr. Grad’s response to the Law Society investigation

98After the Bank filed its complaint with the Law Society, the Law Society asked for Mr. Grad’s response to the complaint. His written response was filed at the hearing, as part of the joint document book. Mr. Grad testified that at the time, it was not clear to him that allegations were being made against him that he was complicit in mortgage fraud. This was, however, clear before he attended his interview with the investigator in 2022.

99On cross-examination, Mr. Grad admitted that he only gave the subject files a cursory review before delivering them to the Law Society and writing his 2019 response. We agree with Mr. Grad’s submissions that his letter to the LSO accurately reflects his state of mind at the time. He was angry and defensive.

100Mr. Grad stated, and we find that at the time he wrote the letter, and when he carried out the subject transactions, he erroneously believed that “once a mortgage transaction is complete, my retainer with the lender comes to an end. Consequently, any work regarding the subject properties after the completion of my retainer would be permitted.”

101He continued, with words that he now regrets, as he now has a better understanding of the complexities of mortgage risk and mortgage fraud:

In Part 4 c. of the complaint, the Complainant wrote, “... the behaviours such as Grant’s [sic, Grad’s] which in our opinion increase exposure to mortgage fraud and have a negative impact on the industry and the public.” With the greatest respect to counsel who drafted the complaint, this is disingenuous hyperbole at best. It is hard for me to understand how any interested party has been exposed to mortgage fraud or has suffered a negative impact.

102Plainly, Mr. Grad did not understand that the second mortgages increased the risks associated with the mortgages, even if the Bank was in first position. He did not appreciate that the increased debt load for the borrowers, and the increased encumbrances on title put the Bank’s capital at risk in a way that it had not bargained for, and would not have accepted.

103However, we do not accept as true that part of the letter where Mr. Grad stated that “I am not aware of any secondary financing being in place at the time of closing of the Complainant’s mortgage transactions.” He admitted to closing the secondary financings subsequent to the closing of the Bank’s first mortgages. But in each of the six transactions, the borrowers’ agreements for the secondary financing were in place and funds were advanced at the time of or prior to the Bank advancing its mortgage funds. He was aware because in five of the six transactions, the private lenders’ funds flowed through his trust account.

104The problem that Mr. Grad faces is that the transactions were not one following the other, but took place concurrently. At least with respect to Properties B to F, Mr. Grad had to have known that the private lender had advanced funds used by the borrowers on the closings of the Bank’s mortgages, as the funds flowed through his trust account contemporaneously. No matter how “aggressively ignorant” Mr. Grad was about how a lender can be exposed to mortgage fraud, he knew what the Bank’s requirements were, and he chose not to ask what the problem was with secondary financing even when the Bank had priority.

105It is noteworthy that in both his written response to the Law Society and during the LSO interview, Mr. Grad did not raise with the investigator that he had suffered personal tragedies at the time of the transactions, and so he had been distracted from paying proper attention to these transactions. We conclude that he did not raise his personal circumstances in response to the investigation because the issues that were taking place in his personal life at the time did not impact at all on Mr. Grad’s ability to practise law, or to carry out these six transactions in particular.

ANALYSIS

106Mr. Grad has admitted that he:

• Abdicated his professional responsibilities by failing to properly supervise his real estate practice.
• Failed to be honest and candid when advising the Bank in connection with the six transactions, including failing to advise that the borrower clients were receiving secondary financing from private lenders, and that he was registering further encumbrances on title.
• Failed to act with honour and integrity in the transactions by commissioning false declarations, including declarations in which it was asserted falsely that there was no secondary financing, or that the source of down payments was not from borrowed funds, and he reported falsely to the Bank that he had complied with instructions.
• Acted for the Bank, the borrowers, and private lenders in the transactions without disclosure to, or the informed consent of the Bank, in circumstances where there was a substantial risk that his duties and loyalty to the Bank would be materially and adversely affected by his duties to his other clients.
• Failed to disclose in writing to the Bank all material information that was relevant to the six transactions before the advance or release of mortgage funds.

107What remains is the question of whether Mr. Grad knowingly assisted in the mortgage fraud, or, alternatively, if he failed to serve the Bank to the standard of a competent lawyer.

108The Law Society asserts that Mr. Grad knowingly assisted in mortgage fraud with respect to the six private second mortgage transactions. To prove knowing assistance, the Law Society was required to establish on the balance of probabilities that Mr. Grad was subjectively aware of the risk of fraud at the time the transactions took place, which includes willful blindness or recklessness. We find that Mr. Grad was willfully blind to the risk of fraud at the relevant time based on the clear and compelling evidence adduced at the hearing.

109In Law Society of Upper Canada v Nguyen, 2014 ONLSTA 32 at para 8, the appeal panel explained that mortgage fraud typically occurs when individuals intentionally borrow money under false pretenses. Fraud need not involve actual loss to the lender, as long as its economic interests are placed at risk through dishonesty. Fraud occurs when there is dishonesty about the underlying material facts of the transaction. The lawyer has an obligation to ensure that the lender is fully aware of all of the material features of the transaction and especially the known “red flags.”

110In Law Society of Upper Canada v Yungwirth, 2013 ONLSAP 24 at paras 51‑55, the Tribunal outlined some of the red flags of fraud. Specifically, it explained:

In a second example of a dishonest or fraudulent transaction, the purchase and sale may or may not be legitimate. The purchase price may or may not reflect fair market value. But the lender regards certain facts as material to whether it will lend; indeed, in some instances, the existence of those facts may constitute a precondition for the loan being made. The lender is entitled to dictate the terms of its financing. These terms are not related solely to the fair market value of the subject property. Terms may be designed to reduce the risk of default on the loans or demonstrate due diligence to the insurer.

111That is exactly the situation in this case. The Bank considered any secondary mortgage financing to be a material fact, and it was not prepared to lend if the borrowers were taking on additional debt loads.

112As his lawyer conceded, Mr. Grad was “spectacularly ignorant”, while at the same time overconfident despite his lack of practical experience. He took a hands-off approach to the real estate aspect of his law practice, even with respect to the secondary financings involving private lenders, which were not run of the mill mortgage transactions. Despite the hands-off approach, Mr. Grad was aware that there was both a first mortgage from the Bank, followed by a second mortgage from a private lender that he was registering against each of the six properties, and he knew that this was not permitted by the Bank. The registration of the second mortgage was not due to Mr. Grad’s ignorance. He knew he was acting in respect of the same borrowers and properties. We conclude that Mr. Grad did not ask the necessary questions about why the second mortgage loans were prohibited because he did not want to know the answers, as it would result in him being unable to act for his secondary financing lender clients.

113Mr. Grad referred to the case of Law Society of Upper Canada v Gregoropolous, 2016 ONLSTH 64 at para 71, which quotes from the earlier case of Law Society of Upper Canada v Baksh, 2012 ONLSHP 65 at para 104, which explains that the actus reus (wrongful act) for mortgage fraud is proven by demonstrating:

a) the dishonest act: a participant misrepresented important facts to the lender, withheld important facts from the lender, or used the lender’s funds for a purpose other than the intended purpose, namely, the purchase of the property; and

b) the deprivation: the dishonest act was to induce the lender to approve the mortgage application or release the mortgage funds or otherwise place the lender client’s financial interests at risk, for example, by increasing the risk of default or the insufficiency of the security in the event of default.

The fraud on the Bank has been made out here by the Law Society, in that the borrowers lied in the statutory declarations, and withheld important facts from the Bank, which induced the Bank to release the mortgage funds to the borrowers, which put the Bank’s financial interests at risk by increasing the risk of default.

114The mens rea element is proven by demonstrating subjective knowledge:

• of the misrepresentation or non-disclosure of facts or the misuse of funds; and
• that the misrepresentation, non-disclosure, or misuse of funds could induce the lender to approve the mortgage application or release the mortgage funds, or could otherwise place the lender’s financial interests at risk. (Baksh, para 105)

115However, the issue here is not whether Mr. Grad had the necessary mens rea to be guilty of fraud as a matter of criminal law (Gregoropolous at para 70) but rather whether he assisted in the fraud with actual or constructive knowledge.

116Mr. Grad’s evidence was that he simply did not pay attention sufficiently to identify the fact that the six transactions at issue involved the same properties and the same borrowers as the first mortgage transactions that he had already closed for the Bank. However, as set out above, we do not find that evidence to be credible. While we accept that Mr. Grad was running the real estate practice on autopilot, these were unique transactions involving private lenders. The funds from the private lenders flowed through his trust account, and there was no evidence that Mr. Grad was unaware of the transactions taking place in his trust account. Indeed, he had to be aware, as he signed all the trust cheques and confirmed the trust transfers. There were matter transfers in his trust ledger showing the transfer of funds to the borrowers from the private lenders and in some cases, there were payments from the Bank mortgage proceeds to the private lenders. We conclude that Mr. Grad was well aware that the private second mortgages were going to be placed on the subject properties after the Bank’s mortgage was registered, and that the funds were already arranged and in use when the first mortgage funds were advanced.

117Willful blindness can be proven by demonstrating that the lawyer was subjectively aware of suspicious circumstances, but either refrained from asking any questions at all, or asked some questions but received obviously inadequate explanations: Baksh, para 107. To make out willful blindness, the Law Society must establish that the lawyer knew there was a probability of fraud, there was the need for some inquiry, but he refrained from obtaining the final confirmation because he wanted to be able to deny knowledge: Law Society of Upper Canada v Mohammedally, 2011 ONLSHP 158 at paras 36 and 38.

118On the preponderance of the evidence, we conclude that Mr. Grad was willfully blind in respect of the mortgage fraud relating to the six transactions in issue. Mr. Grad was aware that the additional funds required by the purchasers to close the first mortgage financings did not originate from the borrowers, but were advanced by the private lenders.

119Mr. Grad knew from the Bank’s instructions and from the terms of the mortgage commitments that the Bank’s loan was conditional on there being no secondary financing. That is why the Bank required the statutory declaration. The Bank’s instructions and commitment letters put Mr. Grad on notice that this was a material concern for the Bank. Mr. Grad also knew from the Bank’s mortgage commitments that there was a maximum loan to value ratio that it was prepared to accept for each transaction. This was the maximum risk that it was prepared to assume. Mr. Grad knew that the secondary mortgages changed the loan to value ratio (it is set out in the Form 9D). Despite knowing all these things, he did not ask the questions to understand why a change in loan to value ratio, or a second mortgage on title would matter to the Bank. We do not accept his explanation that he was extremely ignorant about mortgage fraud, as that does not explain why Mr. Grad ignored the Bank’s unambiguous instructions, and why he failed to notify the Bank about the secondary financing when he was obliged to do so under the terms of his retainer with the Bank.

120At para 74 of Gregopolous, the panel again quoted from Baksh at para 109. The panel must look at the lawyer’s professional awareness of mortgage fraud at the time of the transactions in question. However, and importantly for the present case, “…it comes down to common sense. If a transaction clearly has unusual aspects, a lawyer should not have to wait to be told by a third party that those aspects are unusual.” (emphasis added)

121Here, the secondary financing was unusual, including the timing of the advances under the secondary financing, which often predated the first mortgage. Mr. Grad had instructions from the Bank that required that he be vigilant and tell the Bank if secondary financing was in play. He did not do that. If he did not understand the rationale from the Bank for these terms, he needed to ask questions about why it mattered to the Bank, though the facts before him gave good reason for inquiry. He failed to do so. We conclude that Mr. Grad didn’t ask because he didn’t want to know the answer, as it would negatively affect the private lender and even the real estate practice that he was growing as a profit centre that involved limited engagement on his part. Asking questions would imperil the profitable referral arrangement that he was fostering with Ms. Lall. That is willful blindness.

122For the same reasons, we conclude that Mr. Grad was not honest and candid with the Bank. Mr. Grad had a positive obligation to inform the Bank about any material facts that might affect its decision to advance the loan. He knew that the Bank would not allow contemporaneous secondary financing. We find that he deliberately did not inform the Bank about the fact that the borrowers were obtaining secondary financing from private lenders. We find that Mr. Grad knew that the secondary financing was taking place in each of these six transactions at the time that the Bank advanced the first mortgage funds.

123Mr. Grad relied on a number of other cases where the licensee was found to have failed to practice to the standard of a competent lawyer, but the subjective element of the test for knowing, recklessness or willful blindness was not met. Each of these cases is distinguishable on its facts. Many involved evolving forms of mortgage fraud. There was nothing new or unique here. The borrowers simply didn’t tell the Bank about the secondary financing, and neither did Mr. Grad.

124We conclude that there is clear, convincing and cogent evidence to satisfy the balance of probabilities test set out in FH v McDougall, 2008 SCC 53 at paras 40 and 46, that Mr. Grad was willfully blind to the mortgage fraud being perpetrated by the borrower and secondary lender clients against his client, the Bank.

DECISION

125We find that the licensee contravened s 33 of the Law Society Act, RSO 1990, c L.8, by engaging in the following professional misconduct:

1. Contrary to Rule 3.2-7 of the Rules, between October 2017 and August 2018, when acting for the borrowers and the Bank in real estate transactions involving Properties A to F (the Transactions), the respondent knowingly assisted in dishonest or fraudulent conduct by his borrower clients or other persons to obtain mortgage funds from the Bank under false pretenses.

2. Contrary to Rule 3.2-2 of the Rules, the respondent failed to be honest and candid when advising the Bank in connection with the Transactions, including by failing to advise that his borrower clients were receiving secondary financing from private lenders, that he was acting for private lenders in the Transactions, and that he was registering further encumbrances on title.

3. Contrary to Rule 2.1-1 of the Rules, the respondent failed to act with honour and integrity in the Transactions by commissioning false declarations, including declarations in which it was asserted falsely that there was no secondary financing, or that the source of down-payments was not from borrowed funds. The respondent also reported falsely to the Bank that he had complied with its instructions.

4. Contrary to Rules 3.4-1 and 3.4-2 of the Rules, between 2017 and 2018, the respondent acted for the Bank, the borrowers, and private lenders in the Transactions without disclosure to, or the informed consent of the Bank, in circumstances where there was a substantial risk that his duties and loyalty to the Bank would be materially and adversely affected by his duties to his other clients.

5. Contrary to Rule 3.4-15 of the Rules, the respondent failed to disclose in writing to the Bank all material information that was relevant to the Transactions before the advance or release of mortgage funds.

126We ask the scheduling coordinator to set up a hearing for the parties to address the appropriate penalty and costs. If a case conference is required, it can be arranged through the scheduling coordinator.