Several years ago, the Bank of Montreal first noticed what it described as “irregularities” in some mortgages sold in Alberta. After conducting an internal investigation, it quietly launched a lawsuit last year that alleged a massive mortgage fraud scheme involving hundreds of people, ranging from lawyers to mortgage brokers and four of the bank’s own employees—even a Calgary MP. It also hired a forensic accounting firm to try to trace the funds. BMO claims it advanced a total of about $70 million in mortgage funds to the scheme’s architects, with its losses estimated at $30 million.
Those who work in Canada’s mortgage lending industry described the case, which only came to light earlier this year, as unusual—not because mortgage fraud is rare in Canada (police say it’s not), but because of the size and sophistication of the operation, which involved as many as 14 different interconnected groups.
BMO’s decision to file a lawsuit (in a bid to recoup its money) is also seen as an oddity, with some suggesting that banks and other lending institutions are reluctant to talk about what is believed to be a relatively easy—and lucrative—crime to commit. “If you’re a bank with 1,200 branches, they would probably say that by talking about it, they’re going to educate people on how to pull off a fraud,” says Gerald Soloway, the chief executive of Home Capital Group, which sells mortgages in British Columbia, Alberta, Ontario and Nova Scotia. “I happen to feel that it is a big problem. And I, for one, would like to see more resources devoted to trying to stamp it out.”
But clamping down on mortgage fraud, worth hundreds of millions of dollars annually by some estimates, is easier said than done. For one thing, nobody has any idea precisely how big a problem it is in Canada because, unlike in the United States, no one keeps national statistics on it. And the scams tend to be difficult and time-consuming for police to investigate, if they get investigated at all. But the biggest obstacle may simply be the fact that, in a booming real estate market such as Canada’s, it’s easy to pretend the problem doesn’t exist since there’s far more money to be made selling mortgages than guarding against their abuse.
As white-collar crimes go, many mortgage frauds are relatively straightforward: buy a cheap home in a good neighbourhood and then, with the help of a shady lawyer, real estate agent or other industry professionals, sell it at an inflated price to a phony “straw buyer”—basically anyone who can be convinced to apply for a mortgage using fake income and credit documents in exchange for a few thousand dollars. Thinking there is nothing out of the ordinary, the institution then lends the money (often without conducting a physical appraisal) and the ringleaders pocket their profits, leaving the straw buyers on the hook. It’s often only when the lender eventually forecloses on the property that it’s discovered the house in question is worth a fraction of the amount claimed in the mortgage application.
Given the vast amounts of money up for grabs, the relative simplicity of the scam, and what many argue is a lack of resources to investigate suspected cases, it’s no surprise that mortgage fraud has emerged as an attractive option for career criminals in recent years. “What we’ve seen is that, while the housing market was going up, there was a lot of money to be made—both by legitimate homebuyers, but also by organized crime,” says Greg Draper, a forensic accountant in Alberta and former RCMP officer. Plus, unlike other forms of organized crime, “nobody gets shot over mortgage fraud and the Hells Angels don’t typically come and burn down your house.”
The alleged BMO fraud ring, which an RCMP spokesperson said is still under investigation and has yet to result in charges, is by far the largest in recent memory, but BMO spokesperson Ralph Marranca says it doesn’t indicate a systemic problem at the bank, which says only a tiny fraction of its mortgage losses are due to fraud. He says the suit was launched mainly to recoup the lost money and to “send a strong message” to would-be fraudsters.
It’s unclear whether they are getting the message. In August, Alberta’s integrated law enforcement unit said it had laid charges in a similar but separate $12-million mortgage fraud case after a two-year investigation. The financial institutions allegedly targeted include Scotiabank, ATB Financial, First National Financial, TD Canada Trust, CIBC, Merix Financial, Royal Bank and MCAP Financial, according to police. A 31-year-old man, described as a ringleader, has been charged with 23 counts of fraud over $5,000 and one count of extortion. Other individuals are also facing charges.
While mortgage fraud is a problem across the country, Draper says Alberta emerged as a particular hot spot because of the booming housing market in cities like Calgary, where rapidly escalating prices don’t look out of the ordinary. As well, he says the province’s laws make it easier for buyers to assume someone else’s mortgage, allowing crooks to transfer properties back and forth several times in a bid to artificially inflate the price.
Pages: 1 2