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 7 | 2017

What You Need to Know About Real Estate Fraud

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Real estate and legal professionals need to stay vigilant as criminals are getting craftier with real estate fraud today. We take fraud seriously at FCT and strive to combat it at every step in the process. We have a certified fraud examiner on staff specializing in early detection and protection. We also underwrite for it in our policies, and we defend our clients who fall victim to it.

March is fraud prevention month, so we’ve included a round-up of the real-estate scams to look out for:

  • Title fraud and forgery: The ownership or title of a property is fraudulently changed or documents are forged to allow a fraudster to illegally sell or refinance the property.
  • Mortgage fraud: A mortgage is obtained from a lender under false pretenses. This is also known as application fraud.
  • Value fraud: A lender is led to believe a property is worth more than it really is through conceareal estate fraudlment or intentional misrepresentation of the property’s attributes and value.
  • Foreclosure Fraud: A homeowner in default on their mortgage is deceived into transferring their property title either in exchange for a loan or for assistance with their mortgage. The fraudster imposes payments that are not sustainable for the homeowner and they end up losing their property and equity along with it. The homeowner’s payments are not used to pay off the mortgage and the fraudster can resell or remortgage the home.
  • Shadow flipping: A realtor or investor sells the same property multiple times at increasing prices before the initial sale closing date. The initial seller ends up making less while the last buyer pays an inflated value for the property.

While you cannot prevent fraud from occurring, you can protect yourselves and your clients by carefully reviewing the details of all your deals and by following our recommended best practices.

The best way to protect against title fraud is to get both an owner and lender title insurance policy from FCT.

With a title insurance policy, owners can rest easy knowing their title will be defended in the event it is ever challenged* and they will be protected from other issues like survey and title defects. Lenders will be protected against losses associated with the priority and enforceability of the mortgage, title and survey defects, municipal issues as well as title fraud. Lawyers can rest easy knowing that all parties are protected and FCT has their back in the event of fraud.

Have you come across any fraudulent transactions lately? Tell us about it in the comments section below!

* Insurance by FCT Insurance Company Ltd. This material is intended to provide general information only. For specific coverage and exclusions, refer to the applicable policy. Copies are available upon request.  Some products/services may vary by province. Prices and products/services offered are subject to change without notice.

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 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.

Oct 29 | 2015

Zoomers and real estate fraud

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FCT educates and helps to protect existing homeowners aged 45+
at this year’s ZoomerShow

Ahhh, retirement: the so-called “golden years” when we embrace a slightly slower pace and strive to live each day to the fullest. Retirement, whether it comes at the traditional age of 65, at an early 45 or much later in life, is a time when most of us look forward to pursuing interests and hobbies, as well as spending time with family and friends. It is the dream that gets many of us through the years of clock punching, commuting and piled-on responsibility.

But sadly the new reality for Boomers/Zoomers is that retirement now brings with it the added risk of real estate fraud.

Boomers and Zoomers are more susceptible to real estate fraudzoomer small

Many retirees have worked a large portion of their adult lives to pay off their homes and fulfil their dream of being mortgage free. However, this accomplishment now presents a new set of challenges. Owning your home free and clear of a mortgage makes it very attractive to fraudsters: that growing group of unsavory individuals preying on retirees for their own criminal gain. As a result, the “dream” of retirement has become more of a nightmare for some, accounting for between $400 million and $1.5 billion in real estate damages annually.

In a previous post on The FCT Blog, we explore the different kinds of real estate fraud, which you may find interesting. Knowing the signs is your best line of defence.

But what makes real estate fraud all the more tragic is that of all fraudulent claims received by FCT every year, about one third are committed by someone the victim knows — usually a family member, caregiver or renter. Plus if you’re widow that lives alone or a Snowbird that is away for extended periods of time, you tend to be at an even higher risk. The same is also true for those with diminished mental capacity, who are sadly, more vulnerable than most. A great “EVERYTHINGZOOMER.COM” article that explores this topic more in depth is called, Seniors More Vulnerable to Mortgage Fraud and is worth a read.

A cautionary Snowbird tale

A retired homeowner named Joseph* left for his annual trip to Florida to ride out in the winter under sunnier skies. His home was left vacant. Only a select few friends and acquaintances knew of his plans, including this lawyer and a realtor that was familiar with the family. Sadly, both unscrupulous, the lawyer and the realtor saw the opportunity presented by Joseph’s absence and took it. Together they colluded to transfer the title to Joseph’s property to themselves and obtain a large loan for the entire value of the home. They then discharged the mortgage fraudulently and sold the property to a new family who had no knowledge of the crime they were now a part of.

Joseph returned in the spring to find a new family living in his home — he’d lost the largest investment he owned and worked for decades to pay off. Joseph was now homeless and in dire financial straits. Luckily his title insurance policy helped to rectify the situation and got him back on title and paid the legal fees involved in defending his claim. But most importantly, his coverage helped get him back into his home. The new homeowners that hadn’t purchased a homeowner policy, weren’t so lucky . . . .

* Some details have been changed to protect the privacy of those involved.

Make sure you’re protected

Fraud can happen to anyone, at any time. However, if you are a target, having the right protection in place can help minimize the impact, not to mention the stress and financial consequences.

Look for us at booth 513 in the lifestyle section at this year’s ZoomerShow, October 31 and November 1 taking place at the Enercare Centre in Toronto. FCT staff will be on hand to answer all your questions about how you can protect your existing home, both now and well into retirement. Plus you can even purchase your own title insurance right on site and leave the show knowing your biggest asset is well protected. Hope to see you there!

Are you a Zoomer with a title insurance question but can’t make it to the ZoomerShow? Use the comment section below to learn more.

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.