Mortgage Fraud Burns the Naive

BY VALERIE BERENYI, CALGARY HERALD JULY 10, 2009

CALGARY - Eighteen months ago, a so-called friend told Jason about a way to make a quick buck by
signing his name to a residential mortgage. It's not illegal, he was assured. Now Jason (not his real name) is being sued for $260,000 on a foreclosed house and faces personal bankruptcy. I didn't know what I was doing, the 25-year-old admitted. Jason is a straw buyer,the unwitting victim of an all-too-common mortgage fraud scheme in Alberta, said Gary Siegle, the Calgary-based regional manager for Invis, Canada's largest mortgage broker.

Allegations of mortgage fraud hit the news again this week when the Royal Bank of Canada filed a $8.9-million lawsuit against former Calgary employee Ilan Levy, alleging he had masterminded a complicated real estate scheme while working as a mortgage specialist for RBC from August 2004 to March 2009. Levy is among eight people and six corporations named as defendants in the suit, including his wife,
two of his brothers and a lawyer. None of the allegations have been proven in court.

While Jason's story does not appear to be connected with the lawsuit, Siegle said it is but one example of how people are getting burned by fraudulent real estate transactions. In Jason's case, his buddy recruited him by introducing him to a real estate agent. They met downtown
in the agent's car for five minutes and Jason signed some papers. A week later, he put his signature to more papers in a lawyer's office in Forest Lawn.

Even though Jason had a reported income of less than $20,000 the previous year, a large Canadian bank approved him for two mortgages: one worth $550,000, the other worth $300,000, for a total of $850,000. He never met anyone from the bank, never saw the houses, never planned to live in them and doesn't even know where they are located. They should never have approved me for a mortgage.

Jason received $8,000 in cash for signing on the dotted line. End of deal, he thought. But, nine months later, he was served with a letter from the bank, saying the mortgage on one of the houses had been foreclosed (the mortgage payments weren't made), and he owes over a quarter million.
In a typical scenario--and there are many versions--Siegle said perpetrators wander the city looking for properties sold at lower prices (say an undesirable house on the busy corner of a desirable neighbourhood). They buy the house, put in a straw buyer for a mortgage at an inflated price--say $30,000 more than what it's worth--using doctored purchase documents. Then they pay the straw buyer $7,000 or $8,000 and put the $20,000 in their pocket, explained Siegle.

The phoney sellers may make mortgage payments for a while on behalf of the straw buyers, then disappear and let the property go back to the lender. Or they may lease the property out and collect rent for awhile, but not make the mortgage payments. Or, they may turn the house into a marijuana grow operation, paying the mortgage until the grow op is busted. They're making their money by inflating the value at the application stage and putting the mortgage proceeds in their pocket, and sharing part of the mortgage proceeds with whomever else helps make
that deal happen.

Naive straw buyers, often students and new immigrants, are told they're not on the hook, but that's false, he added. The reality is they're going to be deemed responsible by our legal system because they signed the mortgage. You are legally responsible. Statistics detailing the pervasiveness of mortgage fraud in Alberta are hard to find. Nobody likes to reveal the fact they have some fraud going on,Siegle said, who teaches a course to
new mortgage brokers about how to detect mortgage fraud and forgery. We find financial institution all complain a lot about the high incidence of mortgage fraud that is occurring, but when it comes down to getting hard and fast numbers, it's very difficult. The Alberta government agency that operates the Land Titles Office doesn't compile statistics on the cost of mortgage fraud or investigate mortgage fraud itself, said Mike Berezowsky, spokesperson for Service Alberta. "However, in fiscal year 2008-09 it did assist police with investigations into 1,000 cases of mortgage
fraud in the province", he said.

The Real Estate Council of Alberta also does not compile statistics on mortgage fraud, said spokeswoman Natalie Scollard. We only license and regulate real estate agents, associates, brokers, mortgage brokers and real estate appraisers. There are probably many situations out there where mortgage fraud is perpetrated by people who have nothing to do with our industry. It would impossible for us to quantify the amount of mortgage fraud when can't control that. (Scollard pointed out that Levy, the former RBC employee, was not licensed by RECA. There is an
exemption in the Real Estate Act for banks.)

Jason is now trying to obtain a lawyer through Legal Aid to help him sort through the financial mess. He plans to file formal complaints against the lawyer and the realtor involved. The friend who recruited Jason also got burned: he's declared bankruptcy and lost his own home. His advice? Stay far, far, far away from anyone trying to approach you with a get-rich scheme. It's not
worth it.

Want more info on this or other articles by Valerie?
vberenyi@theherald.canwest.com