Law Times

LAW TIMES • OCTOBER 31, 2011 FOCUS Lawyers tackle real estate fraud Mortgage scams a constant and growing threat BY DARYL-LYNN CARLSON For Law Times L awyers whose practice is focused on real estate law have to keep up to date on the various types of fraud that their clients may encounter. Douglas Shanks of Cheadles LLP in Th under Bay, Ont., ac- knowledges that fraud is increas- ingly prevalent in the area of real estate law. He says that one of the more recent scams stems from the In- ternet in which a fraudster will contact a real estate agent and purport to be living in Japan or China and want to purchase a property in North America. "Th ey will tell the real estate agent that they won't be able to attend for the closing but they ask the real estate agent to give them reference to a lawyer, and the real estate agent does that and the lawyer has the impression it's someone legitimate," he explains. "Th en what happens is the fraudster, posing as a purchaser, sends a cheque to the lawyer for the deposit on the home. Th en in a few days, the deal falls apart and the fraudster says, 'I've changed my mind. I'm not going to pur- chase the home, so deduct your fees and send me back the mon- ey.' And what happens, of course, is it is a fraudulent cheque, so the lawyer is out that amount of money in the trust account. Th e lawyer would have thought all along that it was a valid cheque and a valid purchaser." According to Shanks, these types of fraudsters go to great lengths to try to legitimize their intent to purchase a property. "Some of them even go as far as to send the lawyer an account statement showing the amount of money in their account, which is fraudulent as well." If the transaction is fi nalized, the perpetrator can use the prop- erty as an asset. "So if you have someone from out of the coun- try who can't attend and they have another party attending for them and they're not doing the usual inspections and are looking at multiple properties, those are all indications that there is some fraud going on," says Shanks. Shanks notes real estate fraud related to mortgages has cost fi - nancial institutions, insurance companies, governments, and the public millions of dollars. As far as he knows, none of the per- petrators of this type of Internet scam has been caught. Another frequent scam in- volves a form of identity theft in which fraudsters will get a prop- erty transferred into their name and will become the registered owner, says Shanks. "So then the fraudster goes on to mortgage the property and the mortgage goes into default. So the lender contacts the actual owner and says the mortgage is in default and the owner responds that they don't know anything about it." It's at that point that people start to fi gure out what actually happened. "Th en the lender takes a look at it and says, 'We've been duped here,'" says Shanks. "Th e person who purported to own the property got title fraudulently and mortgaged the property and has now disappeared." Such cases serve as warnings to lawyers. "Lawyers have to be aware of the intricacies of real estate fraud as it can be very so- phisticated. Not so much in the smaller cities, but in the bigger centres it is a huge problem that can aff ect many clients," says Shanks, who notes that Th un- der Bay had a number of mort- gage fraud cases several years ago broker has a licence," she says. "In addition, lawyers may want to advise their clients to attend the offi ce of the company where the alleged agent or broker claims to have a presence and inquire with the support staff there and also advise the clients to meet with shanks, who notes her offi ce has adopted the standard practice of retrieving an opposing coun- sel's profi le on the Law Society of Upper Canada's lawyer direc- tory in order to ensure that the lawyer acting on the other side of a matter is properly licensed Lawyers should start advising their clients to conduct a search with the relevant licensing authority so that their clients can ensure that any real estate or mortgage agent or broker has a licence. but hasn't seen any recently. Cheryl Cruickshanks, a real estate lawyer at Heydary Samuel Professional Corp. in Missis- sauga, Ont., agrees that fraud is becoming a signifi cant issue for real estate lawyers. "Lawyers should start advising their clients to conduct a search with the rel- evant licensing authority so that their clients can ensure that any real estate or mortgage agent or the alleged agent or broker at their offi ce at least once." Lawyers can also do those checks themselves. "Lawyers may even wish to take that extra step and conduct an online search themselves with the relevant li- censing authority, particularly where there are warning signs that the agent or broker with whom their clients are dealing may not be legitimate," says Cruick- and qualifi ed to practice. "Th ere are so many things that the real estate lawyer must be vig- ilant about regarding fraudulent actions that it takes much more work on a single fi le to ensure the client who is undergoing a real es- tate transaction as either a buyer or a seller doesn't run into trouble and it's really important to pro- ceed with caution nowadays," says Cruickshanks. 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