Jul 21 | 2017

What We Can Learn From Toronto-Dominion Bank v. Currie

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What we can learn about fraud from Toronto-Dominion Bank v. CurrieTo what extent will a private lender be bound by the actions of a mortgage broker working on its behalf?  Will Canadian courts deem the broker to be an agent of the lender?  Will this apply even to fraud committed by the broker?  Earlier this year, in the case of Toronto-Dominion Bank v. Currie, the Alberta Court of Appeal issued a decision on precisely these questions.

Currie was a private lender who used a mortgage broker, Fuoco, to handle some aspects of his mortgage lending business.  In this case, Fuoco arranged for Currie to lend $220,000 to the Craigs, and Currie provided them with a mortgage for their property.  The mortgage instructions stated that all communications regarding the mortgage were to be directed to “DAN CURRIE c/o Fuoco Holdings Ltd.”

Following a default on the mortgage, the Craigs arranged new financing with TD Canada Trust.  The bank’s lawyer wrote to Fuoco requesting a payout statement for Craig’s mortgage.  Fuoco prepared a payout statement for Currie to sign, showing a balance owing of $249,992.55.  For reasons that are not clear from the court’s judgment, Fuoco did not provide this figure to the bank’s lawyer, but instead provided a different payout statement, showing only $75,000.00 as being outstanding, and directing the payout funds be made payable to Fuoco.  Upon closing, the bank’s lawyer sent this amount to Fuoco, who escaped with the funds, never having provided a discharge of the mortgage.

The Court of Appeal had to decide which of the two innocent parties, Currie or the bank, should bear the cost of Fuoco’s fraud.  The Court concluded that, by using Fuoco’s services in his lending business, and allowing Fuoco to receive communications and prepare mortgage payout statements on his behalf, Currie had given Fuoco actual authority to act as his agent, and therefore it was Currie who had to bear the loss resulting from Fuoco’s dishonesty.

This case highlights some important considerations for mortgagees and their lawyers.  When acting for an incoming lender, lawyers should always ensure that they purchase title insurance.  What looks like a valid payout statement or discharge could later be challenged by the previous mortgagee itself. Even if, as in Currie’s case, the new mortgagee is ultimately successful, there can be considerable time and money spent on litigation.  Lawyers should also consider adopting the practice of insisting on having an executed discharge from any outgoing private lender in hand prior to closing.  This is already standard practice in some parts of Canada, and goes a long way toward reducing confusion and risk following closing.

While in this case, it was the mortgage broker who committed the fraud, there are other cases in which it was the lawyer or even the borrower. There are measures that brokers and borrowers can also take to ensure they are not involved in a fraudulent transaction.

Mortgage brokers can protect themselves from fraudsters by verifying all the information provided by their clients. For instance, it is a red flag if their salary doesn’t make sense for their stated occupation. Borrowers can ensure that they purchase title insurance so that their legal costs will be covered if they ever have to defend their title. It will also protect them from a host of other issues such as survey or title defects.

Everyone involved in a real estate transaction has the responsibility to protect themselves from fraud.

How do you make sure that you’re protected? Share it with us in the comments section!

Apr 19 | 2017

How can you Mitigate Real Estate Fraud?

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real estate fraudMortgage fraud has quickly become the fastest growing crime in North America, most often affecting the institutions that lend money to individuals purchasing property.

The most common form of mortgage fraud involves fraudsters who acquire property and then artificially increase its value through a series of sales between themselves and an accomplice. A mortgage is then secured on the property based on the falsely inflated price.

FCT is dedicated to helping our valued lending partners protect themselves against losses inflicted by fraudsters. Since 2012, FCT has identified more than $401 million in suspicious mortgage transactions. A title insurance lender policy from FCT provides the ultimate protection and allows a financial institution:

  • the ability to protect its financial interests
  • to safeguard its reputation and business by easily mitigating risk associated with claims

We have created a list of fraud flags and tips to help you mitigate your risk of becoming a victim of mortgage fraud. Whether you are a bank branch lender, credit union lender, a mortgage broker or a mortgage specialist, these tips can help inform you of what to look for when processing a mortgage transaction.

For more information about how to protect you and your customers against mortgage fraud, please visit www.fct.ca or contact your dedicated Business Development Manager.

Mar 24 | 2015

Property fraud: a cautionary tale, Hollywood style

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For ages our society has loved to paint landlords as somewhat evil — individuals that use and abuse their power and position over their helpless tenants.

But recall the 1990 thriller, Pacific Heights, staring a young, fresh Melanie Griffith and a handsome Matthew Modine as a couple terrorized by a conniving and twisted renter, Carter Hayes, played so convincingly by Michael Keaton. Carter never pays any rent, drives the other tenants away (by breeding cockroaches, no less!) and systematically ruins the lives of his landlords, as well as racking up their credit card bills.

landlord-smallAlthough fictional, Pacific Heights offers a cautionary — albeit over-the-top — tale illustrating the perils of property fraud.

In an economy where the average home price in Toronto exceeds the one million dollar mark, it is increasingly common for real-life homeowners to use income from tenants to pay down their mortgages or earn additional income. It can also prove fertile ground for fraudsters.

 

Just ask Calgary landlord Rod Faulkner:

“In the 12 years, people have scammed me in just about every way imaginable,” says Faulkner, who owns 12 Calgary revenue properties. “And every time I get scammed, it costs me money, and I learn a new lesson.”

In the 2012 online article entitled Avoiding property fraud 101, writer Peter Mitham paints a grim picture:

Regulators in each province track mortgage-and title-related fraud, and Better Business Bureaus track other types, but mortgage-related fraud alone regularly tops $300 million a year in Canada. When frauds of all types relating to real estate are factored in, the tally is easily more than $500 million annually.

No one wants a tenant from hell like Carter Hayes in Pacific Heights. If you’re looking for a Hollywood ending to your rental story, below are some practical ways to protect yourself and your investment when renting:

Consider redirecting your mail
If possible, do not have tax bills, credit card bills, bank statements or any other financial information sent directly to your home. Instead, consider getting a P.O. Box, or having the documents sent electronically to a private, secure email address or access documents directly through your financial institution’s portal.

Remove or secure all financial information on the premises
If you are sharing accommodation with a renter, remove old income tax files, property tax records and other bills from the premises. A locked cabinet drawer will not deter a savvy fraudster. Keep the documents in a secure off-site location.

Do ALL security checks
Police criminal record checks and credit checks are worth the nominal fees for the information you gain. Call all references provided, but take their recommendation with a grain of salt: they may be in on any potential scam. Another great way to learn more about your prospective renter is to search their online profile. You’d be amazed at what you can find with a simple Google search! And above all, trust your instincts.

Know your neighbours
Take the time to introduce yourself to your neighbours who can be your eyes and ears when you’re not around.

Get title insurance
Remember fraudsters are getting more and more savvy all the time and although there is no such thing as a 100% guarantee against fraud, title insurance can help greatly mitigate your overall risk. You can learn more about the benefits of title insurance online at FCT.ca.

A recent Toronto Star article, How Ontario landlords can avoid bad tenants outlines additional tips that you may also find interesting.

Know any good landlord or tenant horror stories? Share them here.

Mar 10 | 2015

Title insurance — fraud protection and more

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fraud_and_more_smallAs a lender, when you make the decision to release funds, you need to know that your loan is well protected. Otherwise you and your organization could be at risk for losses associated with (but not limited to) the following:

•    Liens
•    Defects revealed by an up-to-date survey
•    Challenges to the enforceability or validity
of the mortgage
•    Title defects


With title insurance in place you can rest easier, knowing that you’re protected. And if you aren’t yet sold on its value, consider these real-life examples where title insurance saved the day.

Super priority lien
A title-insured mortgage went into default and the lender proceeded to sell the property. However, unbeknownst to the lender, the borrower had failed to remit GST payments to the Canada Revenue Agency (CRA). The CRA claimed priority over the insured lender’s mortgage so they were paid out first from the proceeds of the sale of the property. This resulted in a shortfall of over $20,000 for the lender. Because of the title insurance policy in place, the lender was reimbursed for the amount owing to the CRA as of the policy date, minimizing their potential loss in this situation.

Survey defects
A lender had approved a mortgage on a grocery store which then went into default. The lender attempted to sell the property to recover the debt, only to discover that in a previous transfer of the land, a portion of the land that included a parking lot and loading dock was never properly conveyed. Therefore, this parcel of land still belonged to the original owner, who offered to sell it to the insured lender at a highly inflated rate. He knew that without it, the lender’s sale of the grocery store would be difficult. Since no agreement could be reached, FCT stepped in and compensated the lender for a reduced purchase price for the mortgaged land. The original owner later negotiated the sale of the parking and dock areas at a fair market price and no one suffered a loss thanks to FCT’s involvement.

Mortgage enforceability
A lender had issued a mortgage for just under $1M to a husband and wife. When the mortgage went into arrears and the lender attempted to contact the mortgagors, the wife advised the lender that she and her husband were currently in the middle of a highly contested divorce settlement and that she had never signed any mortgage documents. Because it was arranged without her knowledge or consent, she claimed that the mortgage was unenforceable. Since the lender had insisted on the mortgage being titled insured when they approved funding, FCT covered them for the legal costs of defending the enforceability of the mortgage and the loss as a result of negotiating a settlement with the wife.

Title and/or legal description defects
A mortgage in the amount of $110,000 was in arrears and the lender commenced a power of sale to try to recoup their investment.  Once the proceedings were underway, the lender was advised by legal counsel that there was a life interest registered on title, making it impossible to sell the property until that individual was either paid out or signed off on the sale. Since the holder of the life interest had since passed on, FCT retained and paid for counsel on behalf of the lender to delete the life interest from title. The sale went ahead as planned and lender was able to avoid a loss.

Do you have any fraud stories or prevention tips you’d like to share? Feel free to comment below.

Mar 4 | 2015

How to protect against mortgage fraud

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how_to_protect_you_smallMarch is Fraud Prevention Month, and as such, our focus turns to this month-long education campaign aimed at addressing fraud within Canada. As one of the fastest growing crimes in North America, it is absolutely vital for all Canadian individuals and businesses to be able to recognize and prevent it.

What is mortgage fraud?
Mortgage fraud is a type of real estate fraud that most often hurts the institutions lending money to individuals purchasing property.

The most common type of mortgage fraud is when fraudsters acquire property and then artificially increase the property’s value through a series of sales and resales between themselves and an accomplice. A mortgage is then secured on the property based on the artificially inflated price.

Mortgage fraud can also occur when individuals falsify information used to qualify for loans beyond their financial reach.

Fast and easy money with huge consequences
According to the Canadian Association of Accredited Mortgage Professionals (CAAMP), the average case of real estate title fraud amounts to $300,000 and industry insiders estimate these scams are becoming increasingly common.  For lenders, this type of fraud amounts to potentially huge losses resulting from unpaid mortgage and property foreclosures.

FCT pays out more as a result of fraud than any other claim type.

Protect yourself and your organization
In this digital age where face-to-face contact is minimal, it is more important than ever to be vigilant. Prevention is and always will be the best protection against fraud:

•    Know your client
•    Request a face-to-face meeting, whenever possible
•    Ask for identification and verify its information
•    Look for patterns of odd behaviour and trust your instincts
•    Get title insurance

Title insurance — the ultimate protection
A title insurance policy from FCT allows you to:

•    Protect your financial interests with some of the most comprehensive title insurance coverage available
•    Safeguard yourself, your reputation, and your business by easily mitigating risk associated with claims
•    Provide the best possible service to your clients by partnering with the leader in the title insurance industry

For more information, watch for real-life lender claims stories in an upcoming post.

Feb 26 | 2015

Hasn’t the government fixed the land title fraud problem?

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hasnt-fixed-prob_smallDuring speaking engagements, I often raise the issue of title fraud. When I discuss the possibility that a fraudster could sell your home to an innocent third party and abscond with the proceeds, I usually get the following comment:

“I know this was a big problem a number of years ago but hasn’t it been cleared up?”

My response: “Yes, there were some legal changes made by governments, but title fraud and real estate fraud are still a real and present danger for any homeowner today.”

Here is the source of the confusion:

Previously under old Land Title Act laws, if a fraudster sold your house to an innocent third party the innocent third party got to keep your house.

Now under new Land Title Act laws, you get to keep your house, but you still have to prove that you were the victim of fraud and that you “didn’t do it!”

So don’t be lulled into thinking that the possibility of land title fraud no longer exists. That is what the fraudsters want you to think. In fact, there is no surefire prevention for title or mortgage fraud — as there is no surefire prevention strategy for any form of fraud. The reality is that we can take steps to reduce our risk and ensure we are protected from the negative legal and financial impacts of real estate fraud through insurance products like FCT’s Title Fraud Protection+.

Recovering your title is a legal process and generally costs between $10-15,000. Title insurance is a one-time premium with no deductibles  that stays in place for as long as you own your home. Title insurance premiums start at $350 and are based on the value of your home.

Make an informed decision about title insurance for your home as part of your long-term financial plan. Visit www.RetireYourHome.ca  for more information.

Feb 18 | 2015

Title insurance is protection you can build on

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In this age of competitive, seemingly non-stop, year-round construction projects, it is not uncommon for contractors and suppliers to go unpaid for their work. These individuals need a way to recoup their earnings and often turn to construction/mechanic liens for resolution. In Québec these liens are referred to as legal hypothec for construction.

Liens allow a contractor (or other professional) who has supplied labor or materials to a property they’ve worked on to make a claim against that property’s current owner(s) if not paid for their services, effectively forcing payment of the debt.

Unfortunately for unsuspecting homeowners, these claims can be crippling financially, not to mention the stress and hassle they cause.

“Lien” on title insurance

Most comprehensive title insurance policies can ensure homeowners are protected against construction/mechanics liens as well as many other serious issues. For a low, one-time fee that covers the insured(s) for as long as they own the home, homeowners can purchase a title insurance policy geared to their needs and based on their province of residence.

condo_smallOur coverage in the news

Consider the recent case of Mr. Perreault, a condo owner in Québec. Mr. Perreault describes the “hell” he experienced when he was affected by multiple legal hypothec claims from those those who built the walls, floors, and even did the digging for his new condo. He was at a complete loss as to what to do, overwhelmed by the scope of the problem and the looming financial impact. That is until FCT took over and laid the foundation for the support and resolution
he needed.

Nov 27 | 2014

The flight of the Snowbird — A checklist for travelling South this winter

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snowbird_smallAs the temperature drops, many of our thoughts turn to warm breezes and sandy beaches.

Whether it’s for sunnier skies, an uninterrupted golf season or simply relaxation, Canadians that head to warm-weather destinations are known as Snowbirds. Snowbirds are generally aged 55 and up and live outside Canada for at least one month every year.

The Snowbird flight path

Most Snowbirds prefer to winter in the southern United States because it is close enough to provide all the comforts of home with a common language and culture, yet far enough away from the biting Canadian winter. According to a 2013 survey by the National Association of Realtors, Florida attracts 40 per cent of Canadian Snowbirds and is still most popular for extended stays. Arizona now ranks second at 24 per cent.

What many don’t realize is that living part-time in the United States requires careful preparation. In fact, two of the most common attributes of home profiling by real estate fraudsters are a mortgage-free home and an absent owner. However, with planning you can:

  • Make the most of your time away;
  • Stay safe and healthy; and
  • Protect your finances and property.

There are several key points to consider before “flying” south for the winter:

Insurance

  • Remember to retire your home securely with FCT title fraud protection+
  • Ensure you have adequate health insurance coverage. Provincial plans pay very limited amounts to those out of country so additional third-party coverage is prudent.
  • Make sure your life insurance is up-to-date and premiums will be paid in your absence – missing just one payment may result in your policy being voided.
  • Update your auto insurance to reflect your travel plans, especially if you’ll be driving south. If you purchase a vehicle in the United States, you will need to be covered by an American policy.
  • Consider roadside assistance (CAA/AAA) and always carry emergency provisions such as a first-aid kit, maps, and adequate food and water.

Finances

  • Make a list of all your investments, bank accounts, credit and banking cards so you have a clear picture of your overall financial status before leaving.
  • Ensure your will is up-to-date and valid in your Snowbird state to minimize hassle for loved ones.
  • Establish a legal power of attorney and living will so that your wishes are well-documented.
  • Leave copies of important documents with a trusted individual back at home for safekeeping.
  • Provide instructions to your financial institution regarding term deposits and (Guaranteed Investment Certificates (GICs) renewal.
  • Pre-arrange Registered Retirement Income Fund (RRIF) deposits for a steady stream of income while away.
  • Pre-arrange re-occurring bill payments through online banking or by automatic withdrawal to ensure timely payments.
  • Set up direct deposit for your government allowances such as Canada Pension Plan (CPP) and Quebec Pension Plan (QPP); GST credits; Old Age Security (OAS) and veteran pensions to avoid missing out on income.

Vacant-house concerns

  • Arrange for snow shovelling and/or have someone make tracks in your driveway occasionally so it looks like you have frequent visitors.
  • Consider a house-sitting service or invest in light timers.
  • If you have a security system, let them know of your travel plans and leave contact information.
  • Organize to have your mail held and stop newspaper delivery, but ensure important documents are forwarded to you in your winter home.
  • Leave a vague voice mail message and check messages frequently.

Health and safety concerns

  • Make sure your cell phone has U.S. coverage or consider getting an American phone plan.
  • Register with a local Canadian government office when you arrive in your Snowbird state.
  • Stock up on any medicines you will need for the duration of your trip. It is also a good idea to have a doctor’s note detailing your pharmaceutical needs so that declaring drugs at the border doesn’t pose a problem.
  • Rent a safety deposit box while you’re away for your valuables.
  • Travel with a companion or ensure a friend or family member always knows your whereabouts.
  • Store valuables out of sight, such as jewellery and important papers.

Bon voyage!

The Snowbird lifestyle is very appealing: who doesn’t dream of wintering somewhere warm and relaxing? However, preparing to migrate south each year may seem intimidating. But with research, careful planning and title fraud protection from FCT, it may be within your reach.

To learn more about the implications of being a Canadian Snowbird, speak with your financial planner.

The information contained in this blog post is provided for your general reference/interest and is in no way intended to replace the advice of a professional advisor. We do not make any representation to you with respect to the information presented above. Always consult your own lawyer, accountant and/or financial planner when planning to implement a strategy specific to your needs.

Nov 20 | 2014

Mortgage Freedom and the Myth of Line of Credit Protection

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Mortgage FreedomIn my last blog, Why we launched retire your home , we focused on the “Perfect Storm” of uninsured (no title insurance) seniors’ homes, and how they could be the perfect target for real estate fraudsters – extended absences, rental home, and/or a mortgage-free house.

Many people believe that putting a ‘new mortgage’ on a house that is mortgage-free may be easier as it would raise fewer questions from lenders, insurers and mortgage brokers, than trying to obtain a second mortgage on a house. As a result, One strategy that a number of lenders, financial planners and mortgage brokers have assumed would protect their client’s homes from real estate fraud is to put a line of credit on a home when it is mortgage free. At first blush it may appear that a line of credit would make the prospective fraudulent mortgage appear more conspicuous.

However, having a second mortgage is not that uncommon to see. For example, there are many press stories about the “Bank of Mom & Dad” – where parents helping their children with their first mortgage by re-mortgaging their own home have been commonplace in many high priced housing markets in Canada. So it would not appear out of place for homeowners who had long-term mortgage freedom to suddenly put a new mortgage on their home.

Fraudsters are determined to be undetected. Their plan is to remain undetected until they receive the proceeds from the new fraudulent mortgage they put on your house. If they have stolen your identity they may likely be aware of the line of credit on your home. As such, they will pay off the line of credit from some of the new mortgage and abscond with the rest of these mortgage funds. Many times the fraudsters will also pay the new mortgage themselves for a few months allowing them more time to cover up their tracks and get away with the funds.

As such simply putting a line of credit on your home is not a preventative measure, it is just simply a small hurdle that the fraudster must maneuver. A line of credit is not your best defense against the negative consequences of real estate fraud. Title insurance will provide a remedy if you are left to defend yourself against a fraudulent mortgage.

Remember twice every week FCT declines to insure a suspicious transaction with an average mortgage value of $360,000.

When you pay off your mortgage there is a strong sense of freedom and celebration. In the last year of paying off the mortgage you may have a heightened awareness of possibilities – Where to travel? Whether to buy a winter home in the Sunbelt? How to spend the disposable income?

When you become mortgage free make sure that you add another question to this list- how will I protect the possibilities of my mortgage freedom?

Visit www.RetireYourHome.ca  for more information

Nov 14 | 2014

Why we have launched the “Retire Your Home” Campaign

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retire your homeRetire Your Home is a campaign to encourage those engaged in retirement planning discussions to think about what their home is doing during their retirement- Is it mortgage free, vacant, rented and then plan for its long term security.  It also alerts pre-retirees/ retirees and their financial planners about the increased real estate fraud risks on many attributes common in a senior’s home. It provides them with information about when these risks appear over their home’s life and gives them the tips to Retire Their Home securely.

We are launching this campaign as part of financial literacy month. November marks financial literacy month and this year Canada has a new Financial Literacy Leader, Jane Rooney. Ms Rooney has indicated that her priority is seniors’ financial literacy and well-being.  The federal government recently released its financial literacy strategy for seniors and one of the goals is to increase the tools to combat the financial abuse of seniors, like real estate fraud.

At FCT we feel that the financial security and well-being of Canada’s seniors is an important goal. Seniors are generally out of the workforce and have little time or resources on which to recover from a significant financial loss. Being on the front lines of real estate fraud- carefully reviewing deals that come into our office for potential fraud schemes – we have seen an uptick in fraudsters targeting seniors’ homes. Here are links to a couple of examples where fraudsters targeted seniors (Weekley blog link and Law Times article link). Fortunately both cases did not end with the seniors becoming victims of fraud.

Why is this happening? Some of the MOST common attributes of a retirees’ home – are also some of the MOST common attributes that a fraudster looks for – that the home is mortgage-free, the owners may have extended absences (think Snowbird), the home is vacant, and/or the owners often rent their property in their absence.

At the same time retirees and those close to retirement are the LEAST likely to have a Homeowner’s Title Insurance policy.  Title Insurance is relatively new in Canada and if you purchased your home more than a decade ago you likely will not have a Homeowner’s title insurance policy.

So we have a Perfect Storm – Homes with the most common risks for Real Estate Fraud owned by the people who are least likely to have title insurance. Through our Retire Your Home Campaign we are raising the awareness about the risk factors common in a senior’s home and steps that can be taken to Retire Your Home securely. We also want to start conversations between pre-retirees and retirees with their financial and estate planners. Let’s include title insurance in the retirement planning discussion because most Canadians are building up the equity in their homes as part of their financial nest egg for retirement.

When your house becomes mortgage-free, when you rent your home, and when you become a snowbird – make a conscious choice about title insurance protection.

We know insurance is a personal choice. We encourage Canadians, and seniors in particular, through this campaign to be financially literate and ensure you have made a decision about title insurance when you Retire Your Home. We obviously believe that the best protection against the negative impact of real estate fraud is FCT’s Title Fraud Protection+. It’s your choice- make it.

Visit www.RetireYourHome.ca for more information.