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    How do you minimize the risk of Fraud in Real Estate?
    Posted: 2012-10-02 05:00:34

    The arrival of the Electronic Registration System has increased the incidence of fraud in Real Estate transaction in the last few years. The amount of loss runs into millions of dollars. These frauds claim many victims. Some of the victims are the owners of the property who see their property ownership stolen from under their noses. Since this is a new type of a fraud many owners are not aware that their property title is at risk. Title Insurance Companies are just beginning to address the issue by issuing policies to home owners for such purpose.

    The lenders and banks are primary victims of fraud, but with their larger resources and insurance, they are more equipped to deal with it. The innocent lawyers who are duped in to carrying out the transaction from fraudsters are also victims since they are on the front line of scrutinizing the deals and the identity of the persons for whom they carry out the transactions. When a fraudulent transaction slips through their office they must spend a large amount of time and prove their innocence and help make claims against the title insurance companies or help restore the title to the real owner.

    A common type of fraud is where the fraudster transfers the property with false signature of the real owner to his name or that of a co-conspirator. The signature is copied from some document that the owner has previously signed. The fraudster then proceeds to sell that property and cash the money and disappear. A vacant house or a tenanted property where the owner is not present is more vulnerable to this type of fraud.

    Another type of fraud is where the value of the property is inflated and there are two offers, one with the lower value and one with a higher value. The higher value offer is used to obtain the financing and the lower value offer is used for closing. This way the purchase transaction is accomplished with lower down payment or no down payment. This type of fraud is called "Oklohoma" for whatever reason. To perpetrate this fraud the fraudster must show one offer to the lawyer and ask the vendor’s lawyer and the purchaser’s lawyer to carry out the transaction, and show the other offer to the lender to providing funding.

    A fraud on the mortgage can be perpetrated by showing false income or false identity. Income letters can be generated from fictitious companies and some times with a phone number which is manned by a person who is willing to answer the question of the lender and confirm the employment of the fraudster. A false identity can be used to sign the mortgage documents in place of the real owner. This is the most common method of doing a fraud. The banks and lenders have become much more alert on this issue and now insist on at least two pieces of identification from the borrower. The lawyer’s instructions given by the lender these days insist on proving the identity of the borrower. Banks may also have staff who in complicity with the borrower or their broker overlook the discrepancy in the income of the borrower.

    It is in the interest of all concerned with the real estate transactions today to look for the signals to identify the potential fraud situation and report them to minimize the loss not only to the insurance companies and innocent victims. The common signs of potential fraud are:

    • Transaction is carried out without a registered broker.

    • The vendor acknowledges a large amount of deposit which is not real.

    • Funds are transmitted by direction abroad or to fictitious companies recently incorporated.

    • Vendor does not provide all the documentation of the property such as the survey, tax bills, and the previous solicitor’s report.

    • The transaction is to be carried out in a great rush.

    • The person cannot produce identity cards.

    The ownership of the property in vendor’s name has been very recent. Fraudsters are usually ahead of the game in terms of learning new ways to defraud the public or innocent victims. The banks, lawyers and the insurance companies take time to implement the solutions to the new type of frauds committed. With the advent of the electronic registration system the potential for the fraud has increased as such fraud can now be perpetrated without personal contact and can be done remotely on the computer.

    Bulk of the burden of the identifying the fraudster and the risks of potential fraud has been placed on the shoulders of the lawyers since they are on the front line of real estate transactions. Yet no real tools or resources are provided to them to identify the fraudster. InOntariothey continue to work with minimal fees. With about CAD$ 500.00 of fees for the lawyer on a purchase or a mortgage transaction it is not possible for a typical lawyer to put the resources behind a transaction or provide training to the staff who mass produce documents to make a living from real estate.

    Where title insurance companies provide for the most of the losses, there is little incentive and expertise with the police to identify the fraudsters, trace them and prosecute them. The task of analysing where this is going wrong has thus fallen squarely on the shoulders of the title insurance companies. Although title insurance is not compulsory most real estate transactions inOntarioare conducted with title insurance. Some title insurance companies, like the Lawpro, supported by the Law Society, are taking care to advise the lawyers about the red flags that identify potential fraud in real estate.

    The title registration system is carried by the provincial government under the Land Titles Act or the Registrations Act. In the recent years the registration has become electronic, called Teraview. A greater initiative is required on the part of the government to analyse the problems and find solutions to these problems. The government is in a better position to co-ordinate the efforts of the private sector, including the lawyers, insurance companies, brokers and the police.

    Mr. Jay Chauhan has more than 30 years of experience practicing Commercial law, Family law, Immigration law, Wills and Estates, and Litigation. Mr. Jay Chauhan earned degrees, including a Bachelor of Science from the London School of Economics in England; a Barrister-at-Law at Lincoln's Inn in England; a Master of Economics at the Berlin University in Germany; and a Bachelor of Laws at Osgoode Hall in Ontario, Canada. He was called to the Bar in Ontario in 1972, England in 1965, and admitted as an Advocate in the State of Gujarat, India in 1982. You can learn more about Mr. Chauhan by visiting his website at
    or reading his bio.

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