Mortgage Scam Probed

Posted on Friday, April 08 at 10:51 by 4Canada
The report says mortgage fraud has ballooned to about $300 million a year and become easier with the "depersonalization" of banking due to a move away from face-to-face contact between borrowers and lenders due to the growth of Internet and telephone banking. "Changing technologies and lenders' business strategies have made it possible for people to make online applications that do not require anyone to witness key signatures," the report says. The law society did not make clear in a recent report whether it believes the lawyers were simply duped by others or whether they were actively involved in what it calls a growing threat. "Currently the law society is investigating allegations of mortgage fraud made against 72 lawyers," the 23-page report says. The investigations involve reviewing an average of 75 property transactions per lawyer, the report says, adding the inquiries are complicated and costly. A spokesperson for the law society was not available for comment. The report does not specify whether police are involved in the investigation. Increased competition among lenders has made it possible for borrowers to shop around for the best deal, making it more likely that they can find a lender willing to give them a mortgage, while the heated-up real estate market pressures lenders to make faster loan approvals. The report says the lawyers may be "unwitting" participants in the fraud, having been called into the transaction too late to catch a fraud that took place early in the deal. In one scenario outlined in the report, a fraudster gains access to the Teranet system using a lost or stolen diskette meant to give lawyers and other real estate industry professionals access to land registry records, and changes title on a property to his or her name even paying the required fees and taxes. "Now the fraudster has title to someone else's home," the report says. From there, the fraudster can get a mortgage using Teranet to fraudulently discharge any outstanding mortgages to make the loan approval go more smoothly, if necessary. Bonnie Foster, vice president corporate communications for Teranet Inc., said the company worked with the law society to set up the registry system and has strict procedures in place to ensure the credibility of those granted access to the system. Teranet is a public-private corporation with the province owning 40 per cent and Teranet Inc., a private Toronto company, owning the rest. "I was a little surprised at that report," she said. Foster said anyone gaining access to the system needs to enter a pass code, in addition to using a diskette, to alter documents. "It's just like your bank card. You need your card and your PIN" or personal identification number, she said. She had no figures on how many diskettes have been lost or stolen but said any such disks are supposed to be reported to Teranet so they can be cancelled. Foster said any registered user of a diskette who allows the disk to be used by co-workers or others has breached the security of the system. The report says fraudsters will often ask for mortgages for less than half the assessed value of a house, betting that lenders will not take as close a look at relatively smaller loans. "Only a cursory appraisal will be done, if any at all," the report says. When a fraud is being perpetrated, a lawyer will likely only be called in toward the end of the transaction to facilitate the transfer of money from the lender to the borrower, the report says. But because the lawyer will be presented with credible documentation, it is difficult to distinguish fraudulent deals from legitimate ones, the report says. "The unwitting lawyer, in the meantime, will be investigated," the report says. "In fact, 15 per cent of the $10 million Professional Regulation budget was allocated solely to investigating and prosecuting mortgage fraud in both 2003 and 2004," the report says. The law society has also set up a special mortgage fraud investigation team, and allocated another $1 million to fight fraud this year. That price tag is expected to grow in coming years, the report says. In 1999 and 2000, the value of mortgage fraud in Canada was estimated to be between $73 million and $75 million. By 2001, it had quadrupled to about $300 million, the report says. Fuelling the boom in mortgage fraud has been the advent of Internet and telephone banking, which makes it possible to negotiate and finalize a mortgage without the borrower and the lender ever meeting face to face, including the electronic transfer of title documents, the report says. The law society is calling other industry players to help stamp out mortgage fraud.

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