Law Times

PAGE 12 FOCUS May 17, 2010 • Law TiMes Mortgage fraud continues to dog lawyers Many still duped inadvertently despite legislative, regulatory changes BY JUDY VAN RHIJN For Law Times prepared and largely technology- ignorant profession. The battle to contain it with education and awareness programs has been rag- ing ever since with mixed results. Dan Pinnington, director of F ive years ago, mortgage fraud and identity theft ex- ploded in the face of an un- PracticePRO, says fraud is still very much an issue. He notes that while the number of claims peaked in 2007 and 2008, there have been many new real estate fraud complaints this year. "The high water mark was in 2008. In 2009, the number of claims de- creased, although the cost of the frauds could still be growing be- cause of the increased value of the frauds themselves." Pinnington heads a group of five people who take calls from lawyers suspicious that things aren't adding up. "They need an independent outsider to say, 'These are the red flags,'" he says. "We tell them the questions they should ask to dig a little deeper." There seems to be an improve- ment in awareness of the po- tential problems among lawyers since the Law Society of Upper Canada put the matter on its agenda. "The issue has been very well publicized by the law soci- ety," says David Kirwin, a partner in Szemenyei Kirwin MacKen- zie LLP's London, Ont., office. "People are on guard. If someone comes in to do a million-dollar mortgage that we've never heard of before, alarm bells go off." On Dec. 31, 2008, the law society introduced a bylaw that set out new identification and verification requirements for codifying client due diligence. It included a obtaining picture identification if possible. Kirwin sees that as an effective measure to a degree. "The ability of a person to fraudulently walk in [with] a claim that they're some- one else is restricted. That's the way they work. They claim to be someone they're not and happily sign documents on their behalf." Pinnington says that despite the new awareness and best prac- tices, some lawyers are still being duped through no fault of their own. "We see frauds where law- yers are out-and-out duped even when they did everything right. They are doing the ID check, but someone can go online and for 20 or 30 bucks buy what appears to be a legitimate driver's licence that would fool anyone." The government has also made attempts to get tough on white- collar crime, although there have been few legislative changes. One amendment was the revision of the Mortgage Brokers Act on July 1, 2008. The new regulatory framework aimed to improve consumer protection in a society where the use of brokers to get a mortgage is increasing. Savvas Kotsopoulos, a real estate lawyer at Stikeman Elliott LLP in Toronto, says the new li- censing regime included a raft of measures to educate newcomers to the industry on the dangers of fraud and weed out people with a shady past. "It created the role of a compliance officer within the brokerage firm to supervise the agents and ensure compliance with the new regulations and it gave new powers to the Financial Services Commission of Ontario to enforce the act." In addition, the changes re- Why is The Conveyancer the #1 software application for real estate law offices in Canada? The Conveyancer is a powerful, easy to use, document production and practice management program that automates virtually every document needed to complete purchase, sale and mortgage transactions. 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PracticePRO, meanwhile, isn't seeing anything significantly new or different in the types of frauds. Two basic scenarios are prevalent: identity theft and flip frauds, where someone puts a second mortgage on a property with an inflated value, and the funds go to the mortgagee. But recently, there has been some relief on the mortgage-fraud is- sue because of the economic downturn. "When property values are going up 20 or 30 per cent, people don't blink if there's an $800,000 mortgage on a $600,000 property," says Pin- nington. Nevertheless, losses over the last four or five years have still ap- proached $5 to $6 million. "Most frauds come to light some time down the road," says Kirwin. "From time to time, another one pops up where the facts occurred two or three years ago." LT Untitled-1 1 www.lawtimesnews.com 4/28/10 9:03:47 AM 3955/04/2010

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