March 4th - 2005

RECO targets mortgage fraud

REALTORS could unknowingly become party to mortgage fraud – an activity that according to the Canadian Institute of Mortgage Brokers and Lenders (CIMBL) is on the rise and costing Canadians hundreds of millions of dollars each year.

REALTORS could unknowingly become party to mortgage fraud – an activity that according to the Canadian Institute of Mortgage Brokers and Lenders (CIMBL) is on the rise and costing Canadians hundreds of millions of dollars each year.

The Real Estate Council of Ontario (RECO) says mortgage fraud is a real concern for all real estate industry stakeholders including real estate professionals, lawyers and consumers. RECO, along with CIMBL and FINTRAC (Financial Transactions and Reports Analysis Centre of Canada), is working to increase awareness of mortgage fraud within the real estate industry.

The most common method used to perpetrate mortgage fraud is to misrepresent the purchase price of a property. RECO provides the following example of how such a fraud might occur:

A homeowner approaches real estate Salesperson A to help sell their house. With the salesperson’s help, the house is listed for $250,000.

A few weeks later, an offer is received through Salesperson B representing the potential purchaser. The offer is for $225,000. The homeowner counters the offer back at $245,000 and advises Salesperson A that he would accept no less.

After a number of telephone discussions between the two salespersons, the homeowner is told by their salesperson that the purchaser will accept the price of $245,000 but that it would require a “side deal” whereby the property would be sold at a higher price and the difference would be rebated back to the purchaser on closing. In addition, the homeowner is told that they will be required to use the legal services of a lawyer recommended by Salesperson B because “he knows how to do these side deal transactions and would act on behalf of both the homeowner and the purchaser.

After that conversation, a new offer to purchase including a separate schedule or agreement is faxed to the homeowner. The Agreement of Purchase and Sale indicates that the purchase price is $275,000. The second separate agreement indicates that the homeowner will refund $30,000 to the purchaser on closing. This second agreement actually reduces the purchase price to $245,000.

In the above scenario, the fraud is committed when the mortgagee is led to believe that the property is being purchased for $275,000 which in fact is not true. The second “amending agreement,” which effectively reduces the purchase price of the property by $30,000, is withheld from the mortgagee that is approached to provide the mortgage. Had the mortgagee been aware of the fact that the purchaser was only paying $245,000 for the property, they would more than likely refuse to place the mortgage.

Mortgage fraud is a criminal act, and although RECO has no jurisdiction to prosecute under the Criminal Code, The Real Estate and Business Brokers Act gives RECO the power to investigate criminal offences that are relevant to a person’s fitness for registration under the Act. The Registrar’s position is that any registrant proven to have knowingly participated in mortgage fraud faces losing their registration.

RECO is addressing the mortgage fraud issue with four major initiatives – education on fraud awareness, investigative activities to ensure compliance, collaboration with organizations concerned about mortgage fraud and legal/statutory activities to impose disciplinary action against registrants found to have participated in mortgage fraud. For more information, visit RECO’s web site at www.reco.on.ca.

Be on the lookout
While most real estate professionals will never be involved in fraudulent real estate transactions, it’s important to be familiar with the warning signs of fraud. The following is a list from the REALTORLink™ web site of some things to watch out for:

Down payment:
Provided by an undisclosed third party
Request to have down payment paid directly to the buyer
Unwilling to provide bank statements verifying account balances

Wilful Misleading:
Selling a property in a name other than the seller’s
Representing a commercial property as residential
Representing multiplexes as single dwellings or with fewer units

Appraisal:
Overly inflated
Refusal to have more than one appraisal conducted
Employment/Income: Round numbers could indicate inaccurate information
Letters of Employment are not on letterhead and/or contain no logo

Legal documents:
Forged or altered
Signed copies obtained only electronically, never in person
Purchase Contract has the same lawyer’s name for both parties

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OREA says no to mandatory CREA Code of Ethics course Housing market to remain hot in 2005

For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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