Mortgage Fraud in Ontario
Over the last year, both Harold Levy and Bob Aaron have written on the growing problem with mortgage fraud, enabled by identity theft.
The basic problem is that a) a criminal can steal documents which confer on him or her your identity, b) armed with such documents, the criminal can proceed to either sell or mortgage your home. Although, you won't lose title to your home, you might have to pay off a large mortgage.
Prior to the Ontario Court of Appeal's ruling in Household Realty Corporation Ltd. v. Liu, 2005 CanLII 43402 (ON C.A.) the bank who lent the money to the criminal would eat the mortgage. But after the Court of Appeal's detailed legal analysis, which held that the property was properly encumbered, the banks decided to enforce their mortgage remedies.
In Harold Levy's latest article, Judge chides bank in mortgage fraud, "Superior Court Justice Randall Echlin ruled that Seyed Aboulgasm Rabi and his wife, Shohreh Shafiei, were the innocent victims of fraudsters who stole their identity, transferred the family condo behind their backs to an accomplice, then placed a $250,000 mortgage on the property, took the money and disappeared.
In bold, unequivocal language, Echlin nullified the mortgage, saying the couple "did nothing in any way to bring this nightmare upon themselves" and that the bank was not, as it had portrayed itself, an "innocent victim" of the crime." The Court decision can be read here.
Although the ruling appears to be at variance with the Court of Appeal, Justice Echlin points out that of the two parties, the innocent home owners and the lending bank, the lending bank was in a better position to prevent the fraud. Had the lending bank attended at the home for on on-site appraisal, their appraiser would have learned that homeowners were not selling. The criminals with their false identification would have stopped.
This conclusion is supported by the Appraisal Institute of Canada. "Gordon J. Tomiuk, AACI, P.App, President-elect of the Appraisal Institute of Canada and Chair, of its Ad Hoc Real Estate Fraud Task Force said: "real estate fraud is a crime that the Appraisal Institute of Canada (AIC) takes very seriously. He added that "AIC applauds the judge's ruling in view of the Institute's ongoing concern about the lack of site specific appraisals being conducted in the due diligence process. " Tomiuk reaffirmed that "without appropriate checks and balances, the mortgage lending process is open to all kinds of fraudulent schemes".
However, since the bank was relying upon a mortgage broker to complete the appraisal, a growing trend in outsourcing the back office work, and the mortgage broker simply used an online appraisal, I suspect that we will see more and not less mortage fraud.
What are favourite solutions to this identity theft problem? My preferred solution is for the mortgage documents themeselves to contain pictures, but what is yours?
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