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Wednesday, July 27th, 2016

Mortgage fraud on the rise

MONTREAL — Consumer credit company Equifax uncovered roughly $400-million worth of mortgage fraud in Canada last year, an “eyeopening” number industry experts estimate represents only a fraction of the cheating taking place in the country’s real estate market.

Atlanta-based Equifax says many financial institutions are tightening lending and, as a result, deceit in the property market is rising. A report the company released Tuesday says two-thirds of all the fraud it sniffed out last year was related to real estate.

Mortgages are the biggest bang for the buck,” said John Russo, vice-president and legal counsel for Equifax Canada Inc. “So when credit gets tougher to get, that leads to more people falsifying documents, giving false pay stubs, inflating their income, kind of fudging things to get a home.”

The $400-million in mortgage fraud represents only a sliver of the roughly $1-trillion in total residential mortgage credit outstanding at the moment in Canada. But it rose sharply in 2011 from 2010 in dollar terms, increasing 150%, Equifax data suggest.

The figure is “eye-opening,” Mr. Russo says, because that’s just the amount Equifax flushed out on its own for its clients. “There’s a lot more out there that just goes under the radar and is not seen and not caught.”

Often tracking strong housing markets, mortgage fraud occurs nationally but is more concentrated in large urban areas in Quebec, Ontario, Albert and B.C., says the Criminal Intelligence Service Canada, a federal agency that shares intelligence between police forces. Numerous criminal groups across Canada are involved in a wide range of mortgage frauds at varying levels, the CISC says, sometimes with the help of industry insiders such as property agents, mortgage brokers and lawyers.

One growing trend is people setting up fictitious identities, building up credit for those fake people and then using the credit to borrow. Equifax says five years ago it had identified 300 such fictitious identities in its national database. Now there are more than 2,500.

Using mortgage fraud to further other criminal activity is also common. Criminals are buying properties to open marijuana growing operations, to trade drugs and to launder money.

An increasing number are getting caught and there’s been a dramatic increase in criminal and civil forfeiture cases as a result, said Andrew Bury, a lawyer specializing in loan security enforcement at Gowling Lafleur Henderson LLP in Vancouver.

“They’re grabbing these properties left, right and centre. And over and over again they’re crashing into the mortgage companies, the banks, [which are saying] ‘Wait a second, we have a mortgage on that property.’ “

Lenders are losing big sums while governments reap the re-wards of the seizures, Mr. Bury said.

But the bulk of mortgage swindling still involves ordinary people lying to obtain mortgages larger than their income can support, Equifax said. They’re living in homes that are simply too rich for them. Says Mr. Russo: “No matter how small or big the lie, it’s still mortgage fraud.”

It sometimes takes years for fraud to come to light, notes Toronto forensic accountant Al Rosen. He believes controls in the banking system remain inadequate.

“I see all sorts of situations where the appraised value of [properties] is just laughable. And some of these are not checked out very well,” he says. “Because the only thing that really counts is: What can you sell that property for?”

Canada’s highest-profile mortgage fraud to date is perhaps the case of Martin Wirick, a Vancouver lawyer sentenced to seven years in prison in 2009 for fraud and forgery in an elaborate scheme covering 107 separate real estate transactions conducted on behalf of his client, real estate developer Tarsem Singh Gill.

The scheme was so huge that the Law Society of B.C. raised special contributions from its lawyer members to compensate the victims. As of 2009, it had paid out $38.4-million for the Wirick fraud alone. Over a 40-year period before that, the society’s compensation fund disbursed a total of $52-million for all cases of lawyer misappropriation.

 

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