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Hot market lights a fire under fraud artists

Terrence Belford
Globe and Mail
April 16, 2010

Be warned: Booming markets bring not only higher home prices but often a significant increase in residential real-estate fraud.

That is the word coming out of such disparate organizations as title insurance companies, mortgage insurance firms and law enforcement agencies.

“Yes indeed, we see instances of fraud rise with booming markets, especially in major cities,” says Ray Leclair, vice-president at TitlePLUS, the title insurance arm of Lawyers Professional Indemnity Co., which provides lawyers their version of medical malpractice insurance.

But, he adds, real-estate fraud is not confined exclusively to any upsurge in prices. “It can also take place years after you have bought a home, at a time when homeowners would not expect it.”

While there are no hard statistics on real-estate and mortgage fraud for Canada, in the United States estimates of annual losses run between $4-billion (U.S.) and $6-billion a year. In June, 2008, the U.S. Federal Bureau of Investigation had 42 working groups investigating 1,380 cases – and that was after the U.S. real-estate bubble burst.

“Industry statistics suggest mortgage fraud alone results in annual losses in the hundreds of millions of dollars,” Mr. Leclair says. “In many cases there is little publicity because banks are concerned about maintaining customer confidence.

“They just quietly absorb the losses.”

If you want another statistic, think about this one. Many forms of real-estate fraud require the participation of a lawyer. Last fall, The Globe and Mail reported that in Ontario, between 100 and 140 lawyers were under investigation for complaints having to do with alleged mortgage irregularities.

So what is real-estate fraud?

Criminals are an inventive lot. If there is money to be made, they will find ways to get at it. When 1930s bank robber Willie Sutton was asked why he robbed banks, his answer was a no-brainer. “Because that is where the money is,” he said.

Same with real estate. When the average home price in the GTA is well above $450,000 and a $400,000 mortgage is at stake, that is a powerful incentive for a few days’ work for those with a criminal bent.

The Criminal Intelligence Service Canada (cisc.gc.ca), a group that represents 308 law enforcement agencies across Canada, lists half a dozen schemes that have made villains millions in recent years. They range from tarting up a grow-op house and selling it complete with mould and structural damage to unsuspecting buyers to “fraud for shelter.”

In those cases, a buyer wildly overstates family income, buys a home, gets a mortgage and then promptly stops paying the bills. These relatively garden-variety criminals can often get six months free of basic living costs before they are forced to move on.

More common scams are variations on the Oklahoma, in which a property is sold to a fictitious buyer, who then arranges a large mortgage, pockets the proceeds and disappears. This may also involve a number of equally fictitious buyers flipping the property one to another. Each sale raises the purchase price until the final sale involves a whopping big mortgage.

This crew then pockets the proceeds and vanishes.

Then there are those involving identity theft. Criminals find ways – almost always involving bent lawyers – to change the name of the registered owner on the title to the property. They then obtain a mortgage or even sell the home, collect the proceeds and move on.

The real owners only find out when the mortgage company starts sending nasty letters about missed mortgage payments or the new owners show up with a moving van.

Is there any way to protect homes against fraud? Not surprisingly, Mr. Leclair is a keen proponent of title insurance. Yes, lawyers are supposed to do due diligence, but all they can certify is that everything was ship-shape on closing day.

Title insurance, however, safeguards against fraud, misrepresentation or error as long as a person owns a home.

Title insurance can even kick in should a builder make an unintentional error in paperwork. Mr. Leclair talks about a recent case where a client bought a condo with a lake view and paid extra for it. On moving day, however, his key did not fit the door of the suite he thought he bought. It did, however, open the door to the one across the hallway with a lovely view of a parking lot.

“It was a clerical error,” Mr. Leclair says. “It was not intentional.”

TitlePLUS worked with their client and the developer to find a resolution. The client liked the suite, so a significant reduction in purchase price was arrived at.

“Title insurance can also cover a huge range of small items,” Mr. Leclair says. “We get lots of cases involving things like the vendor not paying taxes or utility bills as claimed or buyers not given the parking spots they were entitled to.”

He suggests simple preventative measures such as checking credit scores regularly to spot inquiries you do not recognize; protecting personal documents so no one can access birth certificates, social insurance numbers, bank statement or credit card information; and keeping an eye on the mail lest property tax and utility bills you do not recognize show up.

“Real-estate fraud is one of those crimes that can happen to anyone,” he says.

Posted on Monday, April 19, 2010 at 05:03PM by Registered CommenterElaine in | CommentsPost a Comment | References1 Reference

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