Don't Become a Pawn in the Game of Fraud

The legendary boxer, Muhammad Ali, once proclaimed, “your hands can't touch what your eyes can't see.” Although he probably was not pondering the intricacies of fraud in real estate when he uttered those words, he still offered prudent advice to anyone interested in preventing fraud. In the realm of real estate, one can only prevent fraud if one can perceive how it works.

Fraud does not stereotype or discriminate. It preys upon everyone – simple or sophisticated – including financial institutions, corporations, real estate lawyers, buyers, and even sellers. As technology increases, the incidence of fraud proliferates. Historically, fraud was typically confined to when a homeowner who acquired a mortgage loan against property that the borrower owned but where a fraudster executed the mortgage as a co-owner or consenting spouse. Today, fraud appears in myriad shapes and sizes. That is why it's in everyone's interest to prevent fraud by first learning how to recognize it.

The first common type of fraud is “value fraud”. In a value fraud, the value of the property is inflated, and usually a third party advances money on the strength of the higher value. In other words, a fraudster purchases real property and then flips the property to a complicit purchaser at an artificially inflated price. This flip at an artificially inflated price would deceive a bank or mortgage lender about the true value of the property when securing a mortgage loan.

The second common type of fraud is “identity fraud”. In an identity fraud, the fraudster borrows the identity of a third party to facilitate the fraud. Typically, the fraudster poses as the owner of a property that he or she does not own. He or she then either secures mortgage financing from a lender or sells the property to an innocent third party. The fraudster vanishes once he or she receives the mortgage funds or property proceeds. Along with misappropriating the identity of the property owner, fraudsters also commonly misappropriate the identity of a lawyer, a corporate owner, and even forge bank drafts and certified cheques.

Now that you understand how fraud can occur, it's time to find ways to prevent it. The Ontario Ministry of Government Services and the Canadian Bankers Association provide several strategies to safeguard yourself from fraudsters preying upon you:

• Do not give out personal information on the phone, through mail or over the Internet unless you have initiated the contact or know with whom you are dealing.
• If it sounds too good to be true, it probably is — before you reveal any personal information, find out how it will be used and if it will be shared.
• Pay attention to your billing cycles. Follow up with creditors if your bills don't arrive on time.
• Guard your mail. Deposit outgoing mail in post office collection boxes or at your local post office. Promptly remove mail from your mailbox after delivery. Ensure mail is forwarded or re-routed if you move or change your mailing address.
• Minimize the identification information and number of cards you carry.
• Keep items with personal information in a safe place. An identity thief will pick through your garbage or recycling bins. Be sure to tear or shred receipts, copies of credit applications, insurance forms, physician statements and credit offers you get in the mail.
• Give your Social Insurance Number (SIN) only when absolutely necessary. Ask to use other types of identification when possible.
• Don't carry your SIN card; leave it in a secure place.
• Check your credit report regularly to ensure there are no discrepancies.
• Reviewing your credit report can help you find out if someone has opened unauthorized financial accounts in your name. There are two credit reporting agencies in Canada: Equifax Canada and TransUnion Canada. You can request free copies of your credit report from credit reporting agencies by mail. Online versions of reports are also available for a small fee.
• You can also conduct a property search at your province land registry office to ensure that the title to your home is in your name.

Fraudsters are very active around holidays when firms are short-staffed and banks are closed. They even know when real estate lawyers are under deadline pressures. Be able to recognize fraud and don't play. In the game of fraud, don't become a pawn.

Matthew Wilson is a real estate and land development lawyer in London, Ontario. The content contained in this blog is intended to provide information about the subject matter and is not intended as legal advice. If you would like further information or advice please contact the author.