Houses flipped among friends at inflated prices
Fiona Anderson
Sun
B.C. real estate lawyers have been warned to be on the lookout for fraudulent mortgage schemes, called Oklahoma flips. In a notice to members last week, the B.C. Law Society said that the schemes, which flip real estate among friends at inflated prices, have “reared their ugly head” in the province.
According to the notice, the scam involves the legitimate purchase of property that is then sold and re-sold to a number of co-conspirators at ever-increasing prices, with the final purchaser obtaining mortgage funding based on the inflated price. The final purchaser is likely an innocent nominee or someone using a false identity, Ontario lawyer Sidney Troister told lawyers attending a Canadian Bar Association conference Monday.
What has made the market vulnerable to this type of fraud is the competitiveness of mortgage lending, the law society’s Ron Usher told the conference.
“There’s more cash than there is sense,” Usher said.
As a result, the kind of “know-your-client due diligence” that was a hallmark of mortgage lending in the past no longer exists, Usher said in an interview.
But these types of flips are not yet a big deal in B.C. despite getting a lot of attention, Usher said.
“We are certainly concerned about it. The banks are talking about it. So we’re just trying to do our best to keep the profession informed,” he said.
One type of mortgage fraud that has increased in the past two or three years in B.C. is the use of false information to get a mortgage on property that is used for criminal purposes, such as marijuana grow operations, said Ken Fraser, executive-director of investigative services for the Financial Institutions Commission.
There are two types of real-estate fraud, Fraser said. The first is fraud for shelter — which means that an individual who isn’t able to qualify for a property will misrepresent his or her ability to pay for the it. Most of the time, mortgage payments are made and there is no problem.
The other type of mortgage fraud is fraud for profit.
“What we’re finding a lot of now is organized criminal involvement in mortgage fraud in order to obtain properties for a variety of reasons,” Fraser said.
These frauds usually involve providing false information or false identities in order to qualify for mortgages for property that will be used for crime. In many cases, the named buyers are nominees who are paid a fee or, in some cases, don’t even know they have a mortgage in their name, Fraser said.
In December, mortgage broker Danh Van Nguyen was suspended for 10 years for providing false employment letters to help clients get mortgages to buy properties, dozens of which were identified by the RCMP as marijuana-growing operations.
Another type of mortgage fraud that was identified at the conference was identity fraud, in which an imposter claims to be the property owner, borrows money against the property, and then disappears, Troister said.
Lawyers should look for red flags to ensure they are not assisting these types of criminals, Troister said. Things to look for include whether the client is known to the lawyer, if he seems to be in a hurry, and if he is willing to pay large fees with little work done, Troister said.
© The Vancouver Sun 2005