TYPICAL REAL ESTATE FRAUD SCHEMES AND THEIR RED FLAGS
Describing real estate fraud means visiting a dark place where suspicious characters roam around, unlawful acts are committed brazenly, and you do not know who you are: because your identity has been stolen. Rhetoric apart, real estate fraud consists of a broad group of fraudsters which the industry faces much to its peril. Among its different types, title fraud is the most prominent as it often hurts individual homeowners. However, recently it has been found that of the more than two million real estate transactions which occur each year in the province of Ontario, there are a limited number of cases of title fraud. In its most common form, unscrupulous people make use of stolen identities or forged documents to transfer a registered owner’s title to themselves without the registered owner’s knowledge. This fraudulent operation enables them to get a mortgage on the property. When the process is complete, and funds are advanced on the mortgage, he or she disappears without a trace. Another name of this type of fraud is “mortgage fraud.” A not quite recent but media popular instance of this nature was reported by CBC News on September 8, 2006. A lady resident of North York lost her home of thirty years when people she had not seen (nor hoped to see) mortgaged her home for $300,ooo without her even realizing it. Somebody misrepresented her to a bank, got the money and was not heard or seen thereafter. The bank became active after a while, and shocked her by trying to evict her from her 100-year-old Victorian home in the Toronto area. The relieving part was that she got back her house but had to fight to get the mortgaged discharged. And it wasn’t until the province of Ontario sought intervener status to help the lady win her fight against the mortgaging bank.
Quite encouraging was the immediate response from the authorities. The Government Services Minister announced plans to introduce a bill to increase the maximum penalty for real estate fraud from $1,000 to $50,000. It was also reported that the proposed legislative amendment would ensure that mortgages, transfers, powers of attorney and other instruments obtained by fraud would be nullified and that the federal government would be requested to consider amending the Criminal Code so as to categorize real estate fraud as a separate offence, and establish a national database of cases. In addition, the Ontario government had already taken preventive steps such as making drivers licences more secure and created a land title insurance fund to provide last-resort financial support for victims. Initially, from this fund, only 10 claims, amounting to less than $1 million, were made a year, out of two million real estate transactions in Ontario. Although, such numbers did not include all the claims made on title insurance to private companies, it was stated that homeowners and authorities also found title and mortgage fraud a growing problem.
There are a number of ways to commit real estate fraud, and by going over the documents involved it is possible to find out whether or not the deal is above suspicion. The best course of action, however, is to take professional help, that is, to consult a lawyer; such at the lawyers at Levy Zavet PC.
Nevertheless, if it is a recent property purchase, the details following are to be considered unusual:
- The property has been purchased on an all cash basis and is subsequently mortgaged;
- There is a Transfer/Deed but no other documents relating to the property (purchase documents or a survey);
- The lawyer who acted in the purchase transaction has not been retained to act in the mortgage transaction and the client instructs the new lawyer not to contact the former lawyer;
- The search of title indicates recent transfers of the property at higher prices and on each of the transfers the same lawyer is engaged;
As well as unusual discrepancies on the Agreement of Purchase and Sale:
- It contains no hand written amendments;
- It contains an amendment which provides for a reduction in the purchase price or a payment to the vendor after closing;
- The vendor in the transaction acknowledges receipt of deposit monies that are not required following the agreement of purchase and sale;
- The deposit is paid to the vendor directly instead of the lawyer in trust or to the real estate agent; and
- Though a real estate agent is listed in the agreement, the lawyer does not receive any commission statement or a payment provision of commission for the listing agent.
Finally, pay attention to oddities in the Transaction(s) such as:
- There is no fire insurance on the home;
- The utility companies are not aware of the vendor owning the home;
- There is an unusual hurry to close the transaction;
- The mortgage is arranged through a broker and the brokerage fee is unusually high;
- There is a contract to pay higher than normal legal fees for the lawyer’s services;
- The purchase price is much higher than the purchase price of recent transfers of the property in question;
- There is a pattern of mortgages being registered and discharged shortly afterwards as per the title history;
- Funds required to close the transaction come from the institutional lender entirely; and
- The name of the vendor in the identification does not match the name of the vendor in other documents in the transaction.
Contact the lawyers at Levy Zavet PC to discuss your next Real Estate transaction and any suspicions you may have as a buyer, seller, real estate agent or broker, mortgage agent or broker or even as another lawyer.