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Mortgage Fraud Down, but Certainly Not Out 

Karim Bardeesy
Globe and Mail
October 13, 2009

While the practice is not as rampant as earlier in the decade, imaginative criminals keep dreaming up new scams

'A good crook can beat a smart lawyer any day of the week."

That's the view of Sidney Troister of Torkin Manes LLP of Toronto, who says that he has seen lots of crooks in his 12 years fighting mortgage fraud, and that the schemes just keep coming.

Mortgage fraud was rampant in the earlier part of this decade, and a number of Canadian lawyers were involved in systematic frauds involving dozens of properties, costing victims millions of dollars. There are indications that the problem has waned. But despite recent regulatory changes and greater consumer awareness, the problem hasn't been eradicated.

In Canada, mortgage fraud usually follows the hottest real estate markets and pricier properties, legal experts say.

"Predominantly this is an Ontario problem, with some in British Columbia," notes Lorne Shuman, director of legal services for First Canadian Title, an Oakville, Ont.-based company that insures people whose right to own a property is challenged.

"Fraudsters [can do it] multiple times, on random properties. Properties that are vacant and appear to be mortgage-free are good targets, [as are] those that are tenanted," Mr. Shuman said.

Many consumers opt for title insurance to protect their real estate holdings, but they are still at risk, experts say.

The basic attributes of any real estate transaction - lots of legal hoops to jump through, the involvement of many parties, the dispersal of specialized information - make it ripe for manipulation.

In the United States, the FBI reports that "based on existing investigations and mortgage fraud reporting, 80 per cent of all reported fraud losses involve collaboration or collusion by industry insiders."

Some Canadian high profile cases have involved lawyers. Martin Wirick, a Vancouver lawyer specializing in property transfers, was accused of helping developer Tarsem Singh Gill commit fraud in 107 real estate transactions between 2000 and 2002. In June, Mr. Wirick was sentenced to seven years in prison. Mr. Gill's case is still before the courts.

The effects of the Wirick case may be having an impact in the broader marketplace.

"I expect that kind of publicity has moved some people to be more vigilant," said Andrew Bury, a lawyer specializing in loan security enforcement at Gowling Lafleur Henderson LLP in Vancouver.

Mr. Bury says he is seeing more attention to possible fraudulent activity at every stage of real estate deals. "In some cases, diligent bankers are catching it at the branch," he said.

Data about mortgage fraud investigations or crimes is difficult to obtain in Canada; in some cases, they are never reported to police. First Canadian Title says its payout of claims related to fraud went from 43 per cent of total payouts in 2007, to 72 per cent in 2008.

There has also been a drop in accusations of mortgage fraud against lawyers in Ontario. The Law Society of Upper Canada has opened only 18 new investigations to date in 2009, from five a month in the 2006-2008 period.

Still, big cases continue to wend their way through the legal system. In July, an Edmonton lawyer, Scott Park, was acquitted of conspiracy to commit mortgage fraud (in a $30-million scheme for which five others were convicted). In the acquittal ruling, Mr. Justice Vital Ouellette of the Court of Queen's Bench, issued a warning to the legal profession as a whole: "There is no doubt whatsoever that the real estate practice carried on by Scott Park left much to be desired, but that is not the issue before this court. As pointed out by the Crown, a lawyer is a key ingredient in such a scam, and this case will undoubtedly serve as a cautionary tale to those practicing real estate law in this province," Judge Ouellette wrote in his decision.

In Ontario, the law society is investigating complaints against 100 to 140 lawyers accused of misconduct related to mortgages, although the society points out that "many investigations ... are likely to close with no finding of wrongdoing," said spokesperson Denise McCourtie.

Ontario has reformed its regulations relating to mortgage fraud in the last few years. Fraudulently obtained land titles are now invalid, which has "clarified" things, Torkin Manes' Mr. Troister said. "There's less publicity around fraudulent activities, but the brunt of the losses are now being taken by financial institutions and title insurers," he said.

In addition, independent mortgage brokers and lenders in Ontario are now subject to a uniform licensing and disclosure standard, something Ms. McCourtie said "can only have a positive impact ... the reduction in experience with mortgage fraud does roughly coincide with the regulation in this area of activity."

But the attraction to commit mortgage fraud is still there, especially in tough economic times. In the U.S., that attraction has generated more enforcement activity. FBI director Robert Mueller recently told the U.S. Senate that his agency had more than 2,600 cases pending on July 31, 2009, up by a thousand from the year before.

In Canada, some specialized areas of mortgage fraud continue to be problematic. For example, illegal marijuana-growing operations, which take advantage of large properties or are conducted in a rental unit whose title is in someone else's name, have become more visible in the past 10 years, said Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals.

The number of mortgage fraud schemes may only be limited by a criminal's imagination, experts say. "I've seen crooks who have created mirror corporate minute books" to create an entity that appears legitimate when title searches are done, Mr. Troister said.

Posted on Monday, February 8, 2010 at 08:53PM by Registered CommenterElaine in | Comments1 Comment | References1 Reference

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Reader Comments (1)

Great artice, very informative.
March 25, 2010 | Unregistered CommenterMortgage Fraud

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