Bank under no obligation to check certificate’s validity when assessing loan application

Categories:

Bank decisions, Lending,

Summary:

In 2021, the bank approved a construction loan for Janet and her husband Bennie. In 2024, the bank asked for supporting documents, including a builder’s risk insurance certificate, which Janet supplied. The bank reviewed and accepted the certificate, which turned out to be an edited copy of an invalid certificate. Janet and Bennie eventually paid the builder $140,000. Janet complained the bank should have noticed that the certificate was invalid, and that, had it done so, they would not have engaged the builder.

Published:

November 2025

Our investigation

We found the bank had no duty to check the certificate’s authenticity. In any case, the differences between an authentic certificate and the one supplied to the bank were slight and certainly not significant enough that the bank should have noticed them and taken follow-up action. In short, the bank had no reason to doubt the certificate’s authenticity.

The bank’s request for the certificate was part of being a responsible lender. Its home loan document was clear about the need for a certificate, saying: “If you are using a loan for construction, you must take out builders’ risk insurance with an insurer approved by us with our interest as mortgagee noted on the policy.” The certificate named the bank as an interested party, as required.