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.

Jan 26 | 2017

Fraud is Alive and Well in B.C.

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Fraud in B.C.I am sure by now many of you have read the Fraud alert: Notices to the Profession published by the Law Society of B.C.  And for those of you who have not, click here for the link.

So as a legal professional, what can you do to protect yourself and your clients from the devastating effects of fraud?  In addition to the tips provided in the Law Society’s publication, as an expert in detecting and deterring fraudulent real estate transactions, FCT has compiled a list of best practices to assist in avoiding fraud:

1. Whether you are acting for a vendor or borrower, always insist that the balance of the proceeds are made payable to the registered owners after payment of secured creditors, taxes, legal fees, bank loans, credit cards, etc. and not to third parties. If the borrower or vendor owes money to a third party that does not appear to be related to this transaction, they can deposit the balance of the proceeds into their bank account and cut their own cheques. In most fraudulent transactions, funds are made payable to third parties, which allow the fraudsters to quickly negotiate the funds and disappear.

2. Be wary of very quick closings where you do not know or have never acted for your clients.  Most fraudsters go to solicitors/notaries who do not know them and hope to pull off the fraud quickly.

3. Question transactions being signed under Power of Attorney.  Why is the Power of Attorney being used and can you contact the Donor?  Review the Power of Attorney carefully.

4. Read your lender client’s mortgage instructions carefully and ensure you comply with their fraud requirements.

5. Get title insurance for both your lender and purchaser clients in order to protect them from the devastating effects of title fraud.

If you didn’t have the opportunity to attend one of our fraud seminars, you can still view it online and obtain CPD credits, by clicking here.

Have you come across any fraudulent transactions recently? Please share your stories with us.

Apr 14 | 2016

FCT is your trusted partner in the fight against real estate fraud

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fraud alertReal estate fraud continues to be on the rise and unfortunately, commercial transactions are no exception. But with FCT in your corner, we can work together to stop fraud before it has a chance to create havoc and claim victims.

The experienced team at FCT employs various due diligence techniques to:

  • Spot suspicious activity (what we like to call “red flags”);
  • Report potential issues to all involved parties; and most importantly
  • Prevent fraudsters from scamming our partners out of their rightful investment.

In fact, it’s something our underwriting team does (and does very well!) on a daily basis, even during the height of the holiday rush . . . .

The naughty list

At the height of the holiday rush, FCT’s commercial division received a request for title insurance for a blanket mortgage in the amount of $2.6 million, spanning five vacant properties, all with titles free and clear (first red flag!). The transaction involved a private lender and a corporate owner.

As part of the request, FCT was provided a copy of the Corporate Profile and the Corporate Document List – everything looked okay.  However, after supporting identification for the borrower was received upon our request, our eagle-eyed underwriting team determined that one of the pieces of identification being used was invalid.

Feeling a bit uneasy about moving ahead with the file, FCT underwriting contacted the lender and the mortgage broker for more information. Years of experience and pure instinct told us that something was off. Our team then called the lawyer involved with a previous purchase of one of the lots — we were right! When compared, the two pieces of ID did not match and showed conflicting information.

For our underwriting team this was more than enough evidence to suspect fraud, especially with such a large deal. We declined to insure the deal and the lender pulled out as well. The real owner was contacted and their lawyer ultimately confirmed that the deal was a fraud.

What did we learn?

  • Bad things can happen to good people – secure your client’s investment with title insurance
  • Put FCT to work for your practice – it is always beneficial to have a second pair of highly skilled eyes on your file
  • Have confidence in our process – we’ve stopped $198 million in possible fraudulent transactions over the past 4 years and we know how to help protect you

Do you have any fraud stories you’d like to tell us about? Until next time, keep your eyes peeled and as Michael LeBlanc told us in his recent blog, trust your instincts.

Mar 8 | 2016

FCT is proud to be a fraud prevention month partner

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fraud2016 marks the 12th anniversary of Fraud Prevention Month in Canada: an annual education and awareness campaign aimed at helping Canadians recognize, reject and report all forms of fraud. FCT is proud to join forces with the Competition Bureau as one of this year’s fraud prevention forum partners.

As part of this campaign, FCT will be hosting a variety of fraud-related events throughout Canada to help spread the word and educate our partners. This will include our 2016 FCT Seminar Series which offers 10 coast–to-coast accredited presentations focused on real estate fraud. During these seminars we will provide attendees with:

  • Regional-specific content
  • Expert insight to the industry
  • Fraud statistics
  • Real-life residential and commercial claims stories
  • Red flag detection strategies
  • Protection solutions using title insurance

Stay tuned for dates and registration information.

FCT has a powerful weapon against fraud

And her name is Marie Taylor.

As a Certified Fraud Examiner with the Association of Certified Fraud Examiners, Toronto Chapter, Marie is a sought-after subject matter expert specializing in residential title insurance. This association is the world’s largest anti-fraud organization and premier provider of anti-fraud training and education.

In fact, having Marie on the FCT team gives us the enviable edge of being the only title insurer in Canada to have a Certified Fraud Examiner on staff — a highly trained specialist that can spot the red flags and suspicious activity that most would overlook. This means that fraudsters know better than to mess with FCT, and that our customers can rest assured they are in good hands when it comes to protecting themselves and their clients against the consequences of real estate fraud.

Don’t be a victim: arm yourself against fraud with help from FCT

Have you or one of your clients been a victim? Tell us your story by commenting below. Or better yet, share your story in person at one of our upcoming fraud seminars.

Until then, remember when it comes to fraud, trust your instincts . . . and trust FCT to have you covered.

Mar 4 | 2016

Lin vs. CIBC and the value of title insurance in British Columbia

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Blog_HomeOwner_Thumb_LockThe case of Lin vs. CIBC has been stirring up a fair bit of interest in the B.C. legal community recently, not only because of the precedent it set, but also due to the fact that according to the Lawyer Herald website, it has now grown into an $8 million fraud case.

This case is very important because it helps answer the question which innocent party bears the loss when mortgage funds are stolen.

According to the Herald, the trouble began in 2013 when Agatha Chung was hired by Hsui-Wen Lin and Min Sheng Tang to refinance a mortgage in the amount of $520,000. These funds were to be used to pay off their existing mortgage at a different institution as well as certain small unsecured debts, with the balance going to the borrowers. Lin and Tang applied for a loan from CIBC and the transactions were managed by CIBC’s lawyer along with Chung acting for the borrowers. However, once CIBC paid the funds to Chung, she vanished along with Lin and Tang’s money. What came next was to decide who actually held that loss: Lin and Tang or CIBC?

In the trial decision, Supreme Court Judge John Steeves ruled that CIBC’s mortgage was invalid, despite the fact that it was properly signed and registered.  The trial court decision was upheld by the B.C. Court of Appeal on December 18, 2015.  The Court of Appeal specifically upheld the ruling that CIBC’s mortgage was invalid on the basis that the borrowers received no consideration for the mortgage and that the money still belonged to CIBC at the time it was stolen.  For more on this case, you can read The Vancouver Sun article Notary fraud case causing legal waves in B.C. courts.  

The growing problem of real estate fraud

Through the course of my day as legal counsel at FCT, I see —first-hand — that fraud continues to be a growing problem in Canada. I can tell you that fraudsters come in all shapes and sizes and from all walks of life. And although it is not overly common for legal counsel to be involved in fraudulent transactions, it does happen, as in the case of Lin and Tang. While title insurance can’t protect you against becoming a victim of fraud, it can and does protect you after the fact by minimizing the financial impact and stress associated with this type of crime.  FCT’s lender policy covers, amongst other things, losses arising from “the invalidity or unenforceability of the insured mortgage upon the title” which is exactly what happened to CIBC in this case.

And it appears that the Law Society of British Columbia agrees.

A recent Practice Resource distributed by the Law Society of British Columbia in February of this year supports FCT’s view on the importance of title insurance during real estate transactions in British Columbia. In response to the Lin v. CIBC ruling, the Law Society recommends five points to safeguard lawyers and their lending clients, including point number four (4), which reads:

  1. Consider whether to recommend closing of certain transactions with title insurance or through some other mechanism, such as escrow, that will protect your client.

I can’t tell you how happy it makes me to see this in print! After years of promoting the benefits of title insurance across the country, it’s very rewarding to know that others in the Canadian legal community also see its value and are recommending it as an aid in the fight against fraud.

Speaking of fraud, as we enter Fraud Prevention Month, I invite you to take part in FCT’s fraud chat on Twitter taking place on March 31st, 2016 featuring our very own certified fraud examiner, Marie Taylor. Plus if you have any fraud tips or stories you’d like to share, please do so by commenting below.

Mar 17 | 2015

Top real estate frauds of 2014 —The best of the worst

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top-story_small
As is our custom during March — Fraud Prevention Month — we bring you the previous year’s top fraud stories. And once again there was no shortage of scams or victims to some of the largest financial crimes reported in Canada. However, what is notable about this list is that most of the fraud artists were women. Here is my equal-opportunity list of the best of the worst for 2014:

 

 

1.    Centrium Condominium Fraud in Toronto — Canada’s largest condo fraud

An estimated $15 million in deposit money slated for down payments on a new condo development went missing from a lawyer’s office in Toronto. Lawyer Meerai Cho faces 75 charges in connection with the theft and her license has been suspended by the Law Society of Upper Canada. The only silver lining is that Tarion, which administers the provincial home warranty, will likely provide some coverage for those defrauded.

2.    An amazing opportunity to invest in South American and South African wineries!

Or so the 200 people who invested money with Rashid Samji thought. The British Columbia-based financial planner was actually operating a $110 million Ponzi scheme, selling a 30% return on the investments of the “Mark Anthony Group” in international wineries. She faces 32 charges and up to $33 million in fines under the BC Securities Act.

3.    Breaking Bad in Alberta

In October, Allan Dawson MacMullin, ringleader of a $6 million mortgage fraud was described as an “economic predator” and a “heartless racketeer” then handed a 10-year prison term. He was also ordered to pay more than $1 million in restitution to two financial institutions and various individual straw buyers after being convicted of 38 counts of fraud for incidents of mortgage fraud that took place between 2000 and 2004.

4.    Converting mortgage proceeds to gold bars in Toronto

Apparently this can be done — who knew? Early in 2014, we learned about Omar Kalair who was offering mortgage arrangements to devout Muslims who believed that they were forbidden under Islamic law from making interest payments. He apparently converted the money into gold bars, coins and electronics and then skipped town. Which begs the question: how did he manage to leave with all the loot in tow?

5.    How far does $3.5M Canadian go in India?

Although the recent drop of the Canadian dollar has probably not helped with her long-term plans, Reta Grewal, the Mississauga lawyer who went missing in November with $3.5 million of her client’s mortgage money can answer that question.

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.

Oct 31 | 2014

The scary truth about title fraud

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title fraudForget about zombies, vampires and witches. This year there is an even more frightening disguise out there: “the fraudster.”

When it comes to disguises, the fraudster is unfortunately very real. Although there is no one agency assessing the financial impact of fraud, industry insiders estimate that these scams cost Canadians between $300 million and as much as $1.5 billion each year. Not to mention the potentially huge losses resulting from unpaid mortgages, property foreclosures —and above all — the emotional and financial stress for the victims.

This is no Hollywood horror movie: this is reality in Canada today. And the fact is FCT pays out more as a result of title fraud than any other claim type.

Title fraud can happen in one of two ways:

Identity theft and impersonation

Using stolen identification or documents, the fraudster pretends to be the homeowner and obtains one or more mortgages on the property.

Forgery

The fraudster registers forged documents to sell the property, registers a forged discharge of the existing mortgage (if one is outstanding) and then gets a new mortgage against the property’s clear title, walking away with the money.

There are many types of fraud with three main types affecting the real estate industry:

1) Title fraud occurs when the ownership or title of a property is fraudulently changed and/or the true owner is impersonated in order to fraudulently sell or mortgage the property.

2) Mortgage fraud is any scheme used to obtain a mortgage under false pretenses. An individual may apply directly to a lender or mortgage broker for a loan secured by real property to which they have omitted or misrepresented facts in order to obtain a mortgage.

3) Value fraud is another type of fraud that happens when a lender is led to believe the property is worth considerably more than it really is through either the concealment or intentional misrepresentation of the property’s attributes and value.

Real-life fraud horror stories

Consider these increasingly common examples of Canadian fraud stories*:

*Names and specific details may have been changed to protect the privacy of those involved.

The disappearing husband

A woman went overseas on an extended vacation to visit an ailing relative. While she was away, her husband forged her signature and fraudulently sold their property. When she returned, she found that the locks had been changed and new “owners” were living in her home. The husband then disappeared . . . .

A grisly discovery

A man went to the City to pay his taxes – a routine quarterly event. While there, the man was told by the City that he didn’t have to pay the taxes because he no longer owned that particular property. The man was flabbergasted — this was his family home he had lived in for decades. Only after much investigation did it come to light that he was a victim of an unlawful transfer of title and the mortgaging of his property for almost $110,000.

The house on the hill

A woman received a call from a mortgage collector saying she was three months behind on her mortgage payments. But the woman didn’t own a home nor had she ever taken out a mortgage to purchase one! Later that same night she also discovered that two other properties had been mortgaged in her name, leaving her on the hook for more than $400,000.

A dead ringer and a no-good niece

An older man passed away, leaving an estate which included a house located in another province. A few months later while probate was being processed, a man with his “niece” walked into a lawyer’s office and presented himself as the deceased, complete with forged ID. The man then transferred the house to the alleged niece, who promptly mortgaged the property, leaving the deceased’s widow with a $300,000 mortgage on her rightful home.

Fight fraud with simple solutions

The best way to fight title fraud is to purchase the ultimate in protection: title insurance from FCT.  But aside from insurance, the best advice is to follow your instincts. If something doesn’t feel right, be extra vigilant and report any suspicious activities. You don’t have to be a victim.

Apr 1 | 2014

Would you buy a property with a notorious past?

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houseA house, like a person can have a checkered past. Unlike paint, wallpaper, tile or other cosmetic choices that a previous owner made – and if you don’t like can be changed faster than a 30 minute HGTV show – the previous owner may have left your house with a reputation. Yes, your house may be known as the “haunted house” or the “drug house” or the “party house.”

After we bought our current home, the neighbours told us that our house was notorious because the teenagers had a blow out party that required every police car in the precinct to bring it under control. At the same time it was looted by a number of party-goers. So we have the party house with loot bags.

These are not the types of issues that generally appear on title. The land title office does not record “ghost” as one of the owners on the deed. Some municipalities will flag homes that have been used as marijuana grow ops or a clandestine drug labs, if remediation is outstanding and there is a work order to bring it to code. But there are no standard practices on registering marijuana grow ops and clandestine drug labs on title.

Title insurers, realtors, property insurers amongst others have been asking the Ontario government to disclose through the land title system properties that have been used as grow-ops or drug labs. While the property may be remediated, it still allows the consumer to make an informed decision regarding whether or not to purchase the property. They can also ask informed questions about mould, power systems, ventilation etc that are relevant in the remediation of these properties. This request has fallen on deaf years, likely because the province is worried about stigmatizing any properties.

Now in the absence of consumer information from the land title office, there is a new website, www.housecreep.com. It includes information on activities like marijuana grow operations, clandestine drug labs, and the site of other criminal activities. You can input your address and see if there are any flags on your home. I of course entered my address and although nothing came up it was interesting to see what was in my area. So it can give you a sense of the neighbourhood as well.

You may have a high tolerance for a “stigmatized” property. I am ok with the party house moniker, but I would probably feel different if a pack of teenagers showed up at my door looking for a party on a regular basis.
So think about your tolerance for these types of “non-title” property issues and what structural issues or visitors they could bring. If you have any significant concerns you may want to ask the seller, realtor or the neighbours if the house has a past. Check all the available sources – even enter the address in a Google search.

If you have any tips on how to check a home’s past please leave a comment here.